Compass : Creating Exceptional Organizations : A Leader’s Guide [1 ed.] 9780988320512, 9780988320505

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Compass CREATING EXCEPTIONAL ORGANIZATIONS: A LEADER’S GUIDE

William F. Brandt, Jr.

Winchester, Virginia

COMPASS Creating Exceptional Organizations: A Leader’s Guide by William F. Brandt, Jr. Published by:

Telephone: Fax: Website: E-mail:

Winter Vale Press 145 Creekside Lane Winchester, VA 22606 540-999-6303 540-665-8324 www.WinterValePress.com [email protected]

Copyright © 2013 by William F. Brandt, Jr. All rights reserved. This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the author, except for the inclusion of brief quotations in a review. ISBN Hardbound: 978-0-9883205-0-5 ISBN E-Books: 978-0-9883205-1-2 (ePDF) 978-0-9883205-2-9 (ePUB) Library of Congress Control Number: 2012955360 First Edition. Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 Cartoon on page 197 used with permission from The Cartoon Bank. Page Design by One-On-One Book Production, West Hills, California

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TO ELAINE

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CONTENTS 1. Introduction

1

2. How to Use This Book

10

SECTION 1 CASE STUDY 3. American Woodmark

17

SECTION 2 ESSAYS 2.1—The Vision

51

4. Yes, Even in Business

52

5. Nice Guys Finish Last

54

6. To Be Exceptional

60

2.2—The Leader

64

7. The Servant as Leader

65

8. Imagine and Inspire

69

9. Everyone a Leader

73

2.3—Processes and Tools

77

10. “What Do I Want?”

78

11. The Much Maligned Meeting

82

12. The Survival of the Fittest

85

13. “Not Knowing is Your Friend”

89

14. Yes, Even for Non3roÀts

93

15. “Maximi]ing 3roÀts³Isn·t That 2ur -oE?”

96

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Compass

2.4—The Journey

102

16. Talk is Cheap

103

17. Guidance from Ghandi

107

18. A Bad Plan Poorly Executed

110

19. 5ight Person  5ight -oE

114

20. “Why Do Exceptional 2rgani]ations Fail?”

117

21. “Any Luck?”

121

SECTION 3 LESS2NS 3.1—The Vision

129

22. 9isionDriven 2rgani]ations

130

23. Values

141

24. Culture

150

3.2—The Leader

157

25. Leaders and Followers

158

26. Leadership Styles for Decision Making

174

3.3—Processes and Tools

182

27. The 7-Step Process

183

28. Meeting Management

196

29. Understanding Discourse

204

30. Mental Models

210

31. Human Motivation

225

32. Working in Teams

236

3.4—The Journey

243

33. Working in Alignment

244

34. Cultural Change

254

35. Ethical Dilemmas

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Contents

SECTION 4 AN INTERVIEW 36. An Interview with -ohn P. Howe, III, M.D.

277

SECTION 5 IMPLEMENTATI2N 37. Creating and Implementing Your Plan

295

38. Using Instructional Materials

306

39. Conclusion

307

Endnotes

309

BiEliography

313

Index

317

Acknowledgments

323

AEout the Author

326

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EXHIBITS Exceptional 2rgani]ations 1.1 SuEMect Index 2.1

7 12, 13, 14

American Woodmark Sales and Income 3.1

42

American Woodmark Financial Strength 3.2

43

Work Hierarchy 22.1

131

Business Strategy Value Creation 22.2

133

Business Strategy Competitive Threat 22.3

134

Business Strategy: SustainaEle Competitive Advantage 22.4

134

How We Do It 24.1

151

Leader-Follower Relationships 25.1

163

Leader-Follower 4ui] 25.2

164

Leader and Follower Behavior 26.1

179

Structural Tension 27.1

185

The 7-Step Process 27.2

186

Personal Action Plan  27.3

190

The -oy of Meetings 28.1

197

The Ladder of Inference 30.1

212

The Ladder of Inference 30.2

213

Canine Ladder of Inference 30.3

214

Human Motivation 31.1

226

Being Thirsty 31.2

226

Structural Tension 31.3

227

Primary and Secondary Choices 31.4

228

Primary and Secondary Choices: An Example 31.5

228

Structural ConÁict: Tension and Resolution 31.6

229

Structural ConÁict: Tension and Resolution 31.7

229

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Exhibits

Structural ConÁict: EatDon·t Eat 31.8

230

Senior Structural Tension: To Be Healthy 31.9

231

The 7-Step Process 33.1

245

Work Hierarchy 33.2

246

Work Hierarchy: An Example 33.3

247

Scorecard 33.4

249

The Widget Department 34.1

255

Pennies Received Each Day 34.2

257

Lillies Remaining Each Day 34.3

258

Reinforcing Loop 34.4

258

Driving a Car 34.5

259

Balancing Loop 34.6

260

National Employment: Reinforcing System 34.7

261

National Employment: Balancing System 34.8

261

National Employment: Interconnected System 34.9

262

Cultural Change 34.10

264

Traditional Approach to Cultural Change 34.11

265

Leadership Retreat: Day 1 36.1

289

Leadership Retreat: Day 2 36.2

290

Leadership Retreat: Day 3 36.3

291

Leadership Retreat: Day 4 36.4

292

Broad-Based Initiative: Plan of Action 37.1

296

Current Reality Relative to the 2rgani]ation·s Vision 37.2

298

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Compass

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INTRODUCTION

American industry, Ey which I mean those for-proÀt and non-proÀt organi]ations that provide the Eulk of our society·s goods and services, has served us well, advancing the lives of people for over 200 years and helping to Euild a great nation. The foundation of this advancement is capitalism, which has as its premise, “the pursuit of self-interest EeneÀts not only the individual Eut also society.” While this underlying premise has proved successful, it does have its limitations³and these limitations are increasing as our world Eecomes more complex, more interconnected and more interdependent. These conditions were exceedingly evident in the most recent Ànancial crisis, where a few institutions³who aEsorEed suEstantial risks in the ]ealous pursuit of their own self-interests³hurt not only their own stakeholders Eut also had the potential to disrupt the world Ànancial markets with disastrous consequences for all. While this Eook acknowledges that the pursuit of selfinterest has EeneÀted society, it offers a new, more powerful paradigm³namely, the simultaneous pursuit of Eoth “selfinterest” and “concern for others.” This new orientation provides a guide for Eehavior that reÁects Eoth the greatest aspirations of humankind and the reality of the world in which we live. This paradigm is not in opposition to the industry structure that has fostered our historic success, Eut rather stands upon the shoulders of what has come Eefore. 1

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Compass

We can act according to this new paradigm Ey creating what I call exceptional organizations³which are: z viable³in that they achieve their purposes and do so while acting according to society·s highest values z sustainable³Ey remaining viaEle over time z valued³in that all stakeholders³owners, employees, clients, providers and communities³see their association with these enterprises as Eeing worthy, whereEy they EeneÀt to a signiÀcantly greater degree than they would with competing entities. Such organizations foster the personal, professional and moral growth of their memEers and are, Ey deÀnition, valued Ey society Eecause society is one of their stakeholders. An exceptional organization is potentially more powerful than a traditional organization Eecause all of its memEers³ Ey pursuing Eoth their own self-interests and concerns for others³have a shared interest in sustaining the viaEility and value-creation of the enterprise. This is in sharp contrast to memEers of a traditional organization, who, Ey acting in their own self-interests, relate to the entity strictly on a transactional Easis. Such memEers attempt to receive “the highest value for services rendered,” without regard for the enterprise as a whole or its other stakeholders. Exceptional organizations are also more powerful Eecause their leaders focus upon long-term viaEility and valuecreation rather than attempting to optimize their own or any other stakeholder·s interests. By doing so, these enterprises are more likely to prosper and grow to the greater EeneÀt of all. Paradoxically, this means, for example, that shareholders will likely receive higher long-term Ànancial returns when their organizations do not attempt to “maximize shareholder value” than when they do.

Introduction

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PURPOSE This is a “how to” Eook. It is intended for those leaders who in their hearts and minds are already committed to creating organizations consistent with the new paradigm Eut who have not yet found a vehicle for getting there. By using this Eook as a compass, leaders will likely: z expand their horizons of what is possiEle z increase the likelihood of creating the type of organizations they truly desire z reduce the time necessary to accomplish this task z reduce, Eut not eliminate, the costs and consequences of missteps and false starts along the way.

AUDIENCES There are many types of organizations. 2ur focus here is on for-proÀt and non-proÀt entities that vary Ey size, scope and complexity. Such enterprises include large corporations, small Eusinesses, universities, hospitals, non-governmental organizations and charitaEle institutions. While each has its differences, they all have two traits in common. First, to remain sustainaEle they must generate a positive cash Áow over time, where incoming cash exceeds outgoing disEursements. Second, the principles and techniques used to create exceptional organizations are applicaEle to them all. The primary audience for this Eook are leaders and memEers of enterprises who aspire to enhance organizational effectiveness either Ey engaging in a comprehensive transformation of their institutions· entire Eehaviors or Ey adopting appropriate principles and methodologies to achieve speciÀc tasks. The concepts and tools presented are likely applicaEle to teams and departments within a larger

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entity even though that entity might not pursue an overall initiative. The secondary audience is comprised of those who desire to learn aEout exceptional enterprises and to assist in their creation. Included in this category are advisors, consultants, coaches, teachers and students, among others.

WHAT ARE THE KEY ELEMENTS OF EXCEPTIONAL ORGANIZATIONS? Relatively few organizations are exceptional. Those that are can Ee characterized not only Ey the results they achieve³ Eeing viaEle, sustainaEle and valued³Eut also Ey the key elements that comprise them. The answers to four questions are the Easis of these elements: QUESTION Why do we do it? What do we do? How do we do it? Who does it?

ANSWER Purpose Action Culture People

We can deÀne these elements as follows: z Purpose³why we exist, the mission the organization pursues z Action³the work we do to achieve our purpose z Culture³the values, Eeliefs, traditions and processes that guide Eehavior z People³the organization·s memEers who do this work. Each element has an organizing principle or theme that focuses Eehavior toward the achievement of the organization·s mission.

Introduction

ELEMENT

ORGANIZING PRINCIPLE

Purpose Action Culture People

Inspiration Vision-Driven Value-Based Right-Person  Right -oE

5

PURPOSE: The organizing principle for “purpose” is inspiration. The enterprise inspires its memEers to act for a cause greater than their own self-interests. Such inspiration gives individuals a sense of meaning in alignment with the organization·s purpose. In the aEsence of this principle, the organization must assume that its memEers will act soley in their own self-interests. If this is the case, the organization is forced to utilize rewards and punishments as its primary source of motivation. This places a great Eurden on the organization to structure its reward-and-punishment systems to Ee in complete harmony with its purpose and with all of the expected actions required to achieve it. Furthermore, the aEsence of this principle reduces the level of commitment Ey memEers and inhiEits their experiencing a sense of worth and well-Eeing that comes from serving a greater cause. ACTION: A vision-driven organization takes action to achieve an end result that, when achieved, supports the entity·s purpose. All activity is focused upon the achievement of the vision, and all decisions are made Eased upon the merits of whether or not a particular action supports it. A component of this organizing principle is a business strategy, or Eusiness model, which creates a competitive advantage. When achieved, this advantage will generate a signiÀcant and sustainaEle cash Áow. Work is aligned to execute the strategy which in turn supports the overall vision. The organization gathers Eoth external and internal feedEack to adMust its actions as necessary.

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Compass

Without a vision-driven organizing principle, actions are frequently independent of the organization·s purpose. This is especially true when the motivation for action shifts to meeting the needs of individuals higher up in hierarchy. When this occurs, decisions are made not on their merits Eut rather to please the Eoss, which leads to wasted or misguided efforts. CULTURE: The culture descriEes how memEers Eehave as they work. It consists of the organization·s values, Eeliefs, traditions and processes. A value-based culture of an exceptional organization Eehaves according to its expected norms which are consistent with the highest values of society. Not Eeing a value-Eased culture will result in the organization·s memEers acting according to whatever they think is appropriate for the entity and themselves. This will result in Eehaviors often at variance with the organization·s purpose, mission and values. PEOPLE: The organizing principle that marshals the organization·s people is the employment of the right person in the right job. All human resource activities focus upon structuring each position to Ee held Ey a highly-qualiÀed and committed individual. Not having the right person in the right MoE inhiEits the organization·s aEility to accomplish its vision. Furthermore, placing people in MoEs where they are unaEle to perform creates a hardship for them personally, either Eecause of the stress of not doing well or the prospect of losing their positions. ExhiEit 1.1 shows the interrelationship of the four organizing principles relative to the key elements of exceptional organizations. The four elements interrelate with each other to form the organization as a whole with each element reinforcing the other.

Introduction

7

HOW THIS BOOK WILL HELP This Eook provides a numEer of Eeliefs, tools and techniques that support the key elements descriEed aEove. These principles can Ee applied individually to address tasks or collectively as part of a Eroad-Eased organizational-change initiative. When applied correctly, such an initiative will result in the organization and its memEers having: z a shared vision of the organization·s aspirations z a shared understanding of current reality z common Eeliefs and values z highly effective and universally applicaEle tools and processes z a common language across the enterprise.

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As these attriEutes are emEraced, the organization will slowly reach a critical mass after which it will quickly move toward Eecoming exceptional.

FORMAT Chapter 2 descriEes how to use this Eook. From Chapter 3 forward, the Eook is divided into Àve sections. The Àrst presents a case study of American Woodmark·s attempt to Eecome exceptional. I cofounded and served as CE2 of American Woodmark, which is the third largest manufacturer of kitchen caEinets nationally. The case study provides an understanding of the challenges facing those who attempt a similar path and gives the reader a context for the ideas included in the essays and lessons that follow. The second section is a collection of essays designed to challenge traditional Eeliefs aEout organizations and offers readers some new perspectives. The essays are grouped into four categories. “The Vision” descriEes what is possiEle³the results desired³for Eoth exceptional organizations and individuals within them. “The Leader” presents the leadership imperatives necessary to create and sustain exceptional institutions. “Processes and Tools” offer various Eeliefs, insights and techniques in support of the four key elements of exceptional organizations. Finally, “The -ourney” shares the challenges that face those attempting to create such entities. The third section is a series of lessons that provide education and training for speciÀc tools and processes that when applied will form a framework for creating exceptional organizations. The lessons are divided into the same four categories as the essays: “The Vision,” “The Leader,” “Processes and Tools” and “The -ourney.” The fourth section is an interview with -ohn P. Howe, III, M.D., the CE2 of ProMect H2PE, an international humanitarian aide organization. ProMect H2PE is using materials now included in this Eook to support its efforts to Eecome exceptional.

Introduction

9

The interview shows readers how a different type of organization is applying the Eook·s principles and methodologies. The Àfth section presents a step-Ey-step guide for deciding whether an organization should undertake a Eroad-Eased initiative to Eecome exceptional, and if it should, how Eest to proceed. It also references an additional offering that will enaEle readers to customize the use of this material for speciÀc presentations for particular audiences. Finally, this section shares my closing perspective.

THE JOURNEY No Eook has all the answers for creating exceptional organizations. All such entities are viaEle, sustainaEle and valued. How they manifest these attriEutes, however, is unique to each. Furthermore, every organization starts at a different place. Therefore, getting from where you are to where you want to Ee must Ee a unique path that you develop together with your team and organization. At Eest, this Eook provides a compass to guide you toward your destination. While I hope this Eook will serve as a catalyst to help you think and Eehave differently, the onus is upon you to undertake your own Mourney and create the results that meet your aspirations. It is your choice. As challenging as such a Mourney may Ee, once completed, it will Ee well worth the effort. It will Ee transformational for Eoth you and your organization.

2

HOW TO USE THIS BOOK

This Eook has two particular uses. The Àrst is to address speciÀc topics or concerns, and the second is to assist in the development of Eroad-Eased efforts to create exceptional organizations. The “Essays” and “Lessons” sections speak to its use in particular situations. ExhiEit 2.1, included at the end of this chapter, is a suEMect index that shows where speciÀc topics are addressed. All sections are relevant to the creation of organization-wide initiatives.

AMERICAN WOODMARK CASE STUDY The case study provides a narrative of American Woodmark·s efforts to Eecome exceptional. It is of particular value to those leaders who are trying to understand what to expect in taking this path. While this case study provides a context for Eoth the essays and lessons which follow, it is not necessary to read it prior to using these materials.

ESSAYS The essays are intended to challenge your thinking and pique your curiosity. They can Ee used for individual reading or as topics for group discussion. They can also Ee read in anticipation of lesson presentations on related topics.

10

How to Use This Book

11

LESSONS Each lesson applies to a particular situation. Since each is independent of the other, they can Ee used in any sequence desired. The lessons are educational in nature Eut where appropriate also focus upon skill-Euilding. They are easy to learn Eut powerful in application. While each lesson stands on its own, collectively they act as Euilding Elocks that support the creation of exceptional organizations.

AN INTERVIEW The interview with -ohn Howe, III, M.D., President of ProMect H2PE will give the reader a perspective on one leader·s attempt to create an exceptional enterprise. It will Ee of particular EeneÀt to leaders and their senior leadership teams who are considering their own such ventures.

IMPLEMENTATION Chapter 37 helps leaders to understand whether or not their organizations are ready to pursue a Eroad-Eased culturalchange effort and, if they are, how they should Eest proceed. Included in the chapter are hints and suggestions Eased upon the experiences of others. Chapter 38 descriEes an additional offering which provides individualized articles Eased upon materials from this Eook. Included are PowerPointŒ slides of each lesson for group presentation. Where providing this Eook in its entirety may Ee neither necessary nor appropriate, leaders can create customized presentations for particular audiences. A useful way to present speciÀc topics to groups is to provide relevant essays prior to a group session, to conduct a lesson on the topic utilizing the PowerPointŒ slides, and Ànally to give the written version of the lesson as a follow up.

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Compass

SUBJECT INDEX TaEle 2.1 is a suEMect index which shows Ey topic the relevant chapters included in this Eook. You may use it to address a particular suEMect or to create a more extensive curriculum in support of a Eroader-Eased change effort.

How to Use This Book

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Compass

SECTION 1

Section 1

CASE STUDY OVERVIEW The American Woodmark case study descriEes the experience of an organization in its attempt to Eecome an exceptional enterprise. It demonstrates the many variaEles that impact the transition to a new structure and the necessity for leaders to remain committed to the desired outcome Eut ÁexiEle in their approach to getting there. The American Woodmark vignettes included in the essays and lessons which follow support and give Áavor to this narrative.

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AMERICAN WOODMARK I cofounded American Woodmark in 1980 to purchase the kitchen caEinet Eusiness of Boise Cascade through a leveraged Euyout. At the time, we had sales of 35 million and three manufacturing plants. The company went puElic in 1986. In 1989 we launched our “1995 Vision,” which dramatically changed our strategic direction. The company·s revenues grew to over 800 million prior to the most recent economic downturn, which for our industry Eegan in 2006. I was the CE2 from the company·s startup until 1996, after which I served as Chairman until 2004 and as a director since. Although this narrative covers American Woodmark·s entire history, the focus is upon the creation and execution of the 1995 Vision.

A CROSSROADS In early 1988, I wrote a “White Paper” to our Board of Directors indicating that our company·s strategy, which had fueled record sales and earnings since the early 1980s, would result in our demise if followed unchecked into the 1990s. The paper·s foreEoding was not so much its dire warning, Eut rather that it offered no plan to resolve our crisis, Eecause I had none! By most every measure, American Woodmark was a very successful company. We had sales of 130 million, superior Ànancial results, seven manufacturing plants and eleven 17

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Compass

distriEution centers stretching from Florida to California. We were the leading supplier of stock kitchen caEinets to the home-center industry, serving Àve of the top ten chains. Forty percent of our sales were to home centers, thirty-Àve percent to independent distriEutors, and the Ealance to Euilders. All sales were under the American Woodmark Erand name. We offered a limited product selection of nineteen styles that were inventoried in the distriEution centers for single kitchen delivery anywhere in the continental United States. At the time, no other caEinet company could match our capaEilities in the areas of logistics, order entry, delivery or sales coverage. This success, however, masked a much darker reality. After Eeing loyal fans, a good numEer of our customers were now aggressively seeking competitors who could potentially match our offering. We had grown along with our home center accounts in the early and mid-1980s as they expanded from local to regional service areas. This was fortuitous initially, Eecause we had no other customers in their respective regions. By the late 1980s, however, these home centers³and in particular The Home Depot and Builders Square³were expanding nationally and entering markets which we had long served with independent distriEutors. Where this happened, we immediately had a conÁict with our distriEutors who had previously enMoyed an exclusive representation. Furthermore, the home centers also entered each other·s geographical regions and Eegan competing directly with one another. Faced with these conÁicts, and seeing us as Eeing unaEle or unwilling to resolve them, Eoth distriEutors and home centers responded Ey looking for other stock caEinet lines to sell. Furthermore, it was clear that the pressure from customers to replace our offering would only intensify over time. The oEvious solution of offering multiple Erands with unique styles to reduce conÁicts appeared totally unfeasiEle, Eecause the key to our strategy was to inventory a limited

American Woodmark

19

numEer of product lines in regional distriEution centers for quick delivery. To store all the styles necessary to support multiple Erands would require a huge investment in inventory and higher production and logistic costs just to keep the sales we already had. Wherever we looked to resolve our dilemma, I saw only doom.

THE VISION During my senior year at Dartmouth College, I was unsure of what to do upon graduation. I reduced my options to a career in clinical psychology or one in Eusiness. I was pursuing my undergraduate degree in psychology, which I enMoyed. I was also exposed to Eusiness Eecause my father had owned a small machine shop. 2ver spring Ereak, I interviewed for positions in Eoth disciplines. As luck would have it, I found nothing related to psychology, Eut I did Ànd a MoE at a Eank. Following the path of least resistance, I took the Eank position. I found it quite rewarding, and after one year, I went Eack to Dartmouth to get my M.B.A. from the Amos Tuck School. Upon graduation in 1970, I Moined Boise Cascade, a maMor forest products company. In 1974, I Eecame the general manager of its kitchen caEinet Eusiness which Boise had acquired three years earlier. The former owner of the caEinet division operated the Eusiness in a very hands-on manner and made virtually every important decision. For example, prior to his selling the Eusiness to Boise Cascade, the only Ànancial employee in the company was a Eookkeeper tasked with preparing all checks, each of which the owner signed personally. While this procedure worked well for him when the Eusiness was small, it did not work as the Eusiness grew. When I took over, the operation was in disarray. My initial focus was on creating a rudimentary organizational structure, putting people into key management positions, and creating

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Compass

necessary accounting and management polices and procedures. These efforts were soon overridden, however, Ey the greater need to restructure the Eusiness in light of a deepening recession and competitive pressures. We reduced our factories from seven to three, putting hundreds of people out of work. While on a rational level I Eelieved that we were doing the right thing, from an emotional perspective I felt a sense of failure and powerlessness in that I was unaEle to protect people for whom I felt responsiEle. The division lost money from 1973 to 1975 Eut returned to proÀtaEility in 1976. While I was leading the Eusiness for Boise Cascade, there was a part of me that dreamed aEout running my own enterprise. Since my father ran his own Eusiness, I was exposed to this possiEility from an early age. Although most of my MoE experience was working for others, I had Erief stints of self employment. I started as a kid calling on neighEors to shovel snow or mow lawns. During my summer Ereak at graduate school, I wrote and sold computer programs. I had also used some of my free time to research various disciplines³such as organizational theory, philosophy, psychology and history³to Eetter understand how Eest to create more effective organizations. In March, 1977, I organized my thoughts aEout organizational effectiveness around a series of questions, some of which were: KEY QUESTIONS

z What is the nature of successful organizations? z How effectively do organizations utilize their people? How can this effectiveness Ee increased? z Do people at all organizational levels Ànd their MoEs meaningful? How can we make them more so?

American Woodmark

21

z What is the potential payEack for an organization which has all of its people working at their Eest to achieve the overall purpose of the organization? z What values and policies will assure that an organization performs in an excellent manner? z To improve organizational effectiveness, where does one start: policies, strategies, goals, recruitment or training? What factors are critical? z Can Eusiness organizations simultaneously Ee responsiEle to society, customers, owners and employees? z What is the nature of organizations that fail? z What characteristics are necessary for an organization to maintain a continuity of effectiveness over time past one effective leader to a succeeding one? 2ut of my reÁections, I created a vision of an organization·s culture that might emEody the highly effective organization that I was seeking. I deÀned this cultural vision as: A CULTURE WHERE:

z The organization prospers and grows z The individual prospers and grows z The actions of Eoth the organization and the individual in pursuit of prosperity and growth are mutually reinforcing z All parties with which the organization interacts EeneÀt from their interaction z The culture is strong enough to prosper and grow Eeyond the generation of leadership which initiated it.

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I saw this vision as a framework for structuring individual and organizational effectiveness applicaEle to any type of enterprise. In the summer of 1977, Boise Cascade engaged a maMor consulting Àrm to evaluate its Euilding-products Eusinesses, including the caEinet division. As a result of this study, it Eecame clear to me that our division would Ee unaEle to grow as quickly as necessary to ever Ee of signiÀcance to Boise. Eventually, it would exit the Eusiness. While this study was Eeing conducted, I approached my Eoss and indicated that if Boise did not want to retain the Eusiness, I would like to form a company to acquire it. His response was that, unless I had a lot more money than he thought I did, I should forget the idea.

THE JOURNEY THE ACQUISITION: I now had a vision of Euying the caEinet division and, in spite of my Eoss·s negative reaction, I did not follow his advice and forget the idea. AEout one year later, I again approached him, indicating an interest in Euying the Eusiness. However, I stated that if this were not feasiEle, I intended to leave the organization after a one-year transition period that would allow Boise Cascade to Ànd someone to replace me. At this point, Boise had no interest in selling the Eusiness to me, Eut my action did prompt an active attempt to sell the Eusiness to others. While Boise pursued this effort, I prepared a Eusiness plan in the event that their effort proved unsuccessful. I researched ways to acquire companies Ey utilizing a large amount of Eorrowed money and relatively little equity. At the time, this process was known as “Eoot-strap Ànancing.” It later Eecame known as “leveraged-Euyout Ànancing” in the 1980s and “private-equity Ànancing” today. I sent articles on the suEMect to my Eoss to show him that such an acquisition was feasiEle.

American Woodmark

23

By SeptemEer 1979, Boise Cascade was unaEle to Ànd a suitaEle Euyer. I received a phone call indicating that Boise might Ee receptive to me presenting an acquisition proposal. Three of the division·s key managers Moined me as cofounders of a new company to Euy the Eusiness. Al GraEer, who led sales and marketing, Moined the division in 1976 after having spent a numEer of years with Boise in various leadership roles. -eff HolcomE, chief Ànancial ofÀcer, came from outside of Boise in the same year after serving in accounting and Ànance positions with several manufacturing organizations. Don Mathias, the operations manager, had started with the division·s predecessor company in the mid-1960s. He worked his way through virtually all of the organization·s functional areas. The four of us came to an agreement with Boise and completed the acquisition on May 1, 1980. In the formation of the new company, a key consideration of mine was the structuring of its ownership among the four founders. To determine the numEer of shares to offer each person, I considered not only their relative responsiEilities, Eut also the way in which voting power, and therefore the legal control of the company, would Ee distriEuted. I deliEerately structured the share distriEution so that I together with any of the other three would have voting control, Eut that the other three acting together could out vote me and take charge. While I would Ee the CE2, they had the assurance that if they acted together, they could veto any of my initiatives. They could Àre me if they feared that I was taking the company in the wrong direction. I rememEer sitting in my living room at home explaining to my would-Ee cofounders how the voting power would work. At no time since then did this suEMect ever come up. The new company was called American Woodmark Corporation. 2ur four founders owned 85 percent of the stock, and a venture capital Àrm had a note convertiEle into the

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remaining 15 percent. The purchase price was 15.4 million, which was funded with equity capital of 350,000 and deEt for the remainder including a suEordinated note to Boise Cascade of 4 million. The deEt was secured Ey the assets of the company, which included three manufacturing facilities. 2ver the preceding twelve months, the Eusiness had sales of 35 million and had earned a small operating proÀt. Sales were declining, however, Eecause of a nationwide drop in new home construction and kitchen remodeling, Eoth the result of rapidly rising interest rates. During the decade of the 1970s, housing starts had averaged 1.7 million per year. By May 1980, housing starts had dropped to an annual rate of less than one million, and the prime rate had skyrocketed to 19 percent. The annual interest rate paid to our primary lender was over 22 percent. Even though we were very concerned aEout the economic climate, none of us hesitated to go forward. We all Eelieved that this was a once in a lifetime opportunity, and we were Must glad to Ee in Eusiness. STARTUP: When we acquired the Eusiness, we were prepared for a recession. However, we did not anticipate that it would Ee as deep or as long-lasting as what actually transpired. 2ur sales declined, and within a few months we were operating at a loss. By the start of 1981, Eecause our initial equity investment was small, we had a negative net worth, meaning that our total liaEilities exceeded our assets. 2ur loan structure had anticipated this possiEility, and we still had additional cash we could Eorrow. But there was no sign of an improvement in the economy, and our cash availaEility would not go on forever. Although we had previously made a numEer of cost reductions, we took the additional step of operating in what we called a “survival mode.” This meant that our primary focus was to assure that the company would stay in Eusiness over the short term. We eliminated everything Eut the most essential spending. When sales continued to

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fall in 1981 and 1982, we laid off additional hourly and salaried employees. At our lowest point, we had a negative net worth of 1.7 million. Although we still had Eorrowing capacity under our loan agreement, our primary lender had the power to shut down our Eusiness, or make other demands, on a moments notice. The difÀcult choices we had to make and the reality that we did not know when the recession would end led to many sleepless nights. A NEW DIRECTION: 1980-1988: The markets for kitchen caEinets were divided geographically according to how they were served. In the Northeast, Mid-Atlantic and Midwest, caEinets were produced Ey regional or national manufacturers who reached the market through a network of independent distriEutors who purchased caEinets in trailer-load quantities for resale. We had a good network of distriEutors in these regions. However, in the South and West, local shops produced caEinets, delivering them in single-kitchen quantities to Euilders, kitchen dealers, lumEer yards and area home centers. Since there were few independent distriEutors in these regions, our sales had Eeen minimal. In mid--une 1980, the regional sales manager of a maMor competitor approached us with what was for us a Eold and radical idea. In less than a week, we committed to his plan and Ey August of that year, Must three months after the company·s startup, we opened our own captive distriEution center in Atlanta to serve the same markets served Ey local caEinet shops. 2ne of the home centers we serviced was a new company called The Home Depot which at the time had four stores. We sold single kitchens, delivering them on a weekly Easis. Fortunately, we were soon successful with this approach³a direction that has driven our strategy ever since. While we had the wisdom and courage to take advantage of this opportunity, we were fortunate to have it in the

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Àrst place. Prior to contacting us, the regional sales manager had approached another caEinet company which was his Àrst choice. That company·s owner said, however, that he could not meet until after he had completed a Àshing trip. By then, we had reached an agreement. Who knows how our future would have unfolded had this person not gone Àshing. We opened our second distriEution center in Dallas in 1981, which along with the Atlanta operation, helped us weather the 1980-1982 recession. With an improved economy from 1983 to 1988, the home center industry grew very rapidly as local chains expanded into geographic regions and then nationally. 2ver this period, we added nine more distriEution centers and expanded our sales organization to support the growing volume. We promoted Dave Blount to our senior leadership team to lead our manufacturing operations. Dave had Moined us in 1976 upon the completion of his MBA and had quickly worked his way up through the organization. We added four factories supporting a fourfold volume gain. In 1986, we took the company puElic, providing funds for expansion and liquidity for equity holders. CULTURAL CHANGE: 1980-1988: From 1980-1982, our primary focus was survival. From 1983-1988, it was to support our customers as they expanded dramatically. Whatever culture we created as a startup company evolved informally Eased primarily upon the Eehavior of our senior leadership team. This mechanism worked reasonaEly well when we had only three manufacturing locations, and all of us were readily visiEle throughout the organization. However, as we started adding distriEution centers and additional manufacturing facilities, our personal reach was spread thin. In 1986, we created a mission statement to codify the values, Eeliefs and Eehaviors we expected of our people. The statement focused on four key values descriEed as follows:

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z Customer satisfaction³Providing the Eest possiEle quality, service and value to the greatest numEer of people. Doing whatever is reasonaEle, and sometimes unreasonaEle, to make certain that each customer·s needs are met each and every day. z Integrity³Doing what is right. Caring aEout the dignity and rights of each individual. Acting fairly and responsiEly with all parties. Being a good citizen in the communities in which we operate. z Teamwork³Understanding that we must all work together if we are to Ee successful. Realizing that each individual must contriEute to the team to remain a memEer of the team. z Excellence³Striving to perform every MoE in a superior way. Being innovative, seeking new and Eetter ways to get things done. Helping all individuals to Eecome the Eest in their MoEs and in their careers. We introduced the mission statement through a series of small meetings conducted across the organization Ey our senior leadership team. We were excited that the mission statement would encourage people at all levels to take action in what we thought would Ee the Eest interests of the company. Unfortunately, after much fanfare, the statement had little impact. In a survey conducted in 1989 questioning how well the organization lived up to its mission statement values, managers throughout the company gave only “integrity” a high rating. They rated the other three values³“customer satisfaction,” “teamwork” and “excellence” as deÀcient. Furthermore, they stated that there had Eeen little progress made in acting according to these values since the mission statement was puElished.

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The reality was that all of our energy was placed upon physically growing the Eusiness. We not only missed the longer-term strategic implications of our strategy, Eut we also neglected to create the cultural infrastructure necessary to sustain our growth. We gave only lip service to our stated values, relying upon only a few informal processes and procedures in their support. Although effective when we were smaller, our company had now Eecome woefully inadequate, particularly as our competitors Eecame more sophisticated. THE 1995 VISION: Since the conÁict among our various channels of distriEution, descriEed in the White Paper presented to our Board in 1988, had no recommended resolution, we set a goal for that year to Eetter execute our existing plan. 2ur theme was “Back to Basics.” Although there were a lot of Easics that needed improvement, this was a little like Euilding a sandcastle in the path of a steamroller. However, until we came up with a resolution to our strategic dilemma, there was nothing more to do. I wrestled anxiously with this dilemma for several months. Finally, in August of 1988, we got a lucky Ereak. A customer suggested that I read a Must-released Harvard Business Review article written Ey George Stalk of the Boston Consulting Group titled, “Time³The Next Source of Competitive Advantage.” Before completing the article, I had the answer to how I Eelieved we could Ee a viaEle company once again. In the article, Stalk showed how -apanese industry shifted its strategic focus at least four times since 1945. At Àrst, they competed with low-wage rates. But Ey the early 1960s, when these were no longer an advantage, they developed scalebased strategies to reduce costs with large-volume capitalintensive facilities. By the mid-1960s, they introduced a third source of competitive advantage³the focused factory. With a focused factory, a company competed Ey offering a reduced product offering, frequently serving only the highest volume

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segments of a market³this was American Woodmark·s strategy. The focused factory, however, could not effectively provide high variety if that were needed. This was our dilemma. To resolve such dilemmas, the -apanese introduced a fourth source of competitive advantage, the Áexible factory. Toyota led the development of the ÁexiEle-factory system. It relied upon just-in-time -IT production³where small quantities of materials were produced Must prior to use in the next operation; total quality control; and employee decision making on the factory Áoor. By the mid-1970s, many -apanese Àrms were using these techniques. Stalk included ÁexiEle manufacturing, increasing the rate of innovation and response time reduction of critical activities, as examples of using time as a source of competitive advantage. The article caused me to rethink many of the Easic assumptions I held aEout how to run a manufacturing Eusiness. I arranged to meet with Stalk, where I conÀrmed my understanding of his principles and their relevance to American Woodmark. I spent the next six months attempting to persuade my senior leadership team that we needed to turn the company upside down and emEark on a radically new strategy. This was not an easy sell. Initially, none of them Eelieved that our current situation was as Ead as I thought it was. They thought my proposed solution seemed, at Eest, a pipe dream and, at worst, a nightmare. In the end, however, we all concluded that we needed to pursue this direction. In the spring of 1989, we presented our plan to the Board and received its approval. The key elements of the new strategy were as follows: z Multiple brands³to create separate Erands with unique product styles for independent distriEutors and key home center accounts

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z Product variety³to expand the numEer of unique styles within each Erand, increasing the total numEer of lines produced to over 100, resulting in a Àvefold increase z Product innovation³to Ee a product innovation leader within the caEinet industry where we had Eeen a follower with our previous strategy z Distribution centers³to eliminate all eleven distriEution centers, shipping orders from our three regional assemEly plants for delivery within the same lead times as existed with the centers z Manufacturing³to produce to customer order, using -IT production techniques, rather than to inventory as previously done, and z New management processes³to adopt new management techniques to change our existing culture as necessary to implement the aEove actions. We called this our “1995 Vision” Eecause we expected it to take us six years to complete. While the strategy·s potential EeneÀts were huge, so were its risks. It entailed a complete reorientation of how we ran the Eusiness with new operating philosophies and processes in virtually every part of the company. Second, we had to orchestrate many of the changes simultaneously Eecause functional areas were interdependent. Third, the costs for introducing new products, phasing out distriEution centers, and starting new operations were suEstantial. Fourth, there was the nagging question as to whether the EeneÀts of -IT and other time-Eased operating techniques would actually Ee as great as expected. And Àfth, there was the fear that as a puElic corporation, any disruption of our then favoraEle Ànancial performance would sig-

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niÀcantly impact our stock price and shareholder value. With all of these risks, one may wonder why we pushed ahead. 2nce I Eecame aware of our situation, my motivation was quite simple³raw fear! I truly Eelieved that if we followed the track we were on, American Woodmark would not only fail to Eecome the company we aspired to Ee, Eut our very survival would Ee in Meopardy. Like people Mumping from a Eurning Euilding, our senior leadership team eventually saw that the anticipated strategy was our only way out. Furthermore, I had every conÀdence that we would pull this off, even if we were to hit a few speed Eumps along the way. We introduced the new strategy to our next level of management at a momentous meeting held at the Wayside Inn in Middletown Virginia in April, 1989. The news stirred everyone·s deepest emotions, Eut the speciÀc emotions felt were quite mixed. 2ur sales and marketing team, who had Eorne the front-line Eattle scars of our customers· wrath over market conÁicts, were ecstatic that we were Ànally taking action to correct this situation. The additional Erands and product lines were Must what they needed. 2ur logistics and manufacturing teams, however, were simply in a state of shock. Not in their wildest dreams could they imagine our wanting to change so radically, when from their perspective, things were going so well. We were after all still setting performance records. 2ur logistics people saw us dismantling a nationwide distriEution system that they had spent ten years creating. Meanwhile, our manufacturing team considered it literally impossiEle for us to achieve the stated product variety and delivery goals. They Eelieved that the only hope for the company would Ee if the strategy·s implementation were to get Eogged down and eventually aEandoned. With these varying sentiments, we plunged ahead. The strategic plan we presented to our Board showed a slow growth in sales and proÀts over the implementation

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period. My intent was to orchestrate the transition so that one-time costs and disruptions would Ee spread out enaEling us to still show some Ànancial improvement each year. I Eelieved the six-year horizon would give us the time to do this. 2ur Àrst initiative was to create a new Erand of caEinets for the independent-distriEutor channel. A task force worked feverishly for one year to introduce the new Erand, TimEerlake, at the National Kitchen and Bath Show in the spring of 1990. The offering was a comEination of existing and new door styles. For high-volume standard lines, we simply changed the laEels of our existing products. But, we did add over 20 new and unique higher-grade styles, more than douEling the total offering from the existing American Woodmark line. We were quite proud of the result. Unfortunately, our distriEutors did not share our enthusiasm. The conversion costs for them to take on the line would Ee suEstantial. They would need to replace inventories, kitchen displays and marketing materials, plus forego whatever local Erand equity they had created Ey marketing the American Woodmark name. Furthermore, they did not know if we were really committed to the new Erand. If they were to incur the cost of making a change, perhaps they should replace us with a product line from a competitor who would Ee “truly committed to the needs of the distriEutor.” After several years of rapid growth, our sales dropped slightly in 1990. In addition to the lukewarm reception of the TimEerlake Erand, the economy had entered a recession. With the costs of developing the new lines and the manufacturing inefÀciencies of more than douEling our product offering, our earnings dropped signiÀcantly. For the year, we were only marginally proÀtaEle. 2ne year into the conversion, and we were already off track! While our sales and marketing team had remained enthusiastic over this period, the atmosphere within our manu-

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facturing and logistic groups was one of grudging compliance. The conviction remained that any slowing of the transition would help “save the company.” Aware of these sentiments and struggling Ànancially, we entered 1991 intent on slowing the pace of change and digesting what we had already done. 2ur sales continued to drop, and we were soon losing money. We reduced our planned new offerings to only a few lines to help staEilize the Eusiness. Then on Monday, March 4th, I received two phone calls. Coincidentally, our two largest home centers, The Home Depot and Builders Square, had each decided to add a second core supplier of stock caEinets. Suddenly, we faced the possiEility of losing 50 percent of our volume with each account. The primary reason for their decisions was the increasing conÁict with the “American Woodmark” Erand as they expanded into each other·s local markets. Secondarily, with our focus on creating new door styles for the TimEerlake distriEutor Erand, we had delayed improvements to our home center standard-style offering, which had Eecome stale. 2ur Eusiness was suddenly in crisis. We were already in a recession, operating our manufacturing plants on reduced schedules, losing money and struggling with the changes already made. The customer-conÁict issue was even more critical than we had imagined, and now our home center sales were aEout to take a free fall. We were facing a moment of truth! 2ur senior leadership team held what Eecame an historic meeting in mid-March to address our situation. At a critical point in the meeting, we concluded that we needed to draw a line in the sand and do whatever it took to restore the leadership position previously held with our key home center accounts. We left the meeting resolved to do so. We committed to creating a separate Erand of caEinets for Builders Square, thereEy eliminating the conÁict with Home Depot,

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who would retain the American Woodmark Erand. We also committed to redesigning our highest-volume, standard door styles, which represented 70 percent of our existing volume, and to offering unique styling for most styles offered for each Erand. To accomplish this would require that we quickly douEle our product offering, to over 100 lines! We Ànalized this plan in August, 1991 and Eegan the implementation for a spring 1992 introduction. We had nine months to pull it off. In sharp contrast to its initial response to the 1995 Vision, this time the entire organization put its full weight Eehind this initiative. With our Eest customers reducing our representation in their stores, the magnitude of our deteriorating market position was dramatically apparent to all. Now everyone in our organization was gripped with fear. Where our manufacturing team had collectively said that we were changing too fast, I can clearly recall one plant manager saying to me, “Tell us what you need and when you need it. We don·t know how we will get it done, Eut we will get it done.” We expanded factories, incurred huge marketing, product development and manufacturing start-up costs, pieced together new systems to handle the explosion in product variety and continued the gradual elimination of distriEution centers. By the following spring, we achieved what had previously seemed “impossiEle.” At the Kitchen and Bath Show, we again showcased our new product offering. This time the impact was dramatic. 2ur distriEutors saw that we had upgraded their standard caEinet styles and gained conÀdence that the TimEerlake Erand would Ee around in the future. The separate Erand for Builders Square reduced conÁicts among home centers, and the updated product styles for all home center accounts enaEled us to refurEish displays and generate excitement at the store level for our new offering. 2ur sales continued to decline in 1992 Eut turned upward Ey

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the end of the year with strong momentum going into 1993. We still lost signiÀcant position with our home center accounts, Eut we had stemmed the tide and gradually started gaining Eack market share. The crisis was over, Eut we had paid a heavy price. We lost over 4 million for the year, down Ey 11 million from a record proÀt of over 7 million in 1989. 2ur stock price sank to a low of 1.25 from a 1989 high of 6.13. It took us until 1996 to complete the 1995 Vision. We were successful in achieving all of its maMor strategic elements. We expanded from one Erand of caEinets to four. We increased the product styles offered from 19 to over 100, doing in three years what our manufacturing team had thought would Ee impossiEle in six. We Eecame a product development leader where we had previously Eeen a follower. With our Must-intime manufacturing orientation, we eliminated eleven distriEution centers and reduced Ànished-goods inventory from 250,000 units to less than 20,000, even though product variety and sales volume increased suEstantially. Delivery times to customers out of factories stayed the same as they had Eeen from our distriEution centers. 2ur on-time complete shipments rose to an outstanding performance level and product quality improved dramatically. Furthermore, we regained the conÀdence of our customers. We reestaElished our leadership position in the stock segment of the home-center industry. With the TimEerlake Erand we Eecame one of the leading suppliers to the distriEutor-Euilder market segment. 2ur Mourney did not follow the relatively straight path proMected in 1989. It took us longer than expected, and we got severely Eruised along the way. CULTURAL CHANGE: 1989-1995: To Ee a product innovator offering expanded variety and multiple Erands, we needed to make a greater numEer of decisions more quickly throughout the organization. The Must-in-time manufactur-

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ing approach, where all activities were Eased upon producing to customer order rather than to inventory, necessitated our achieving suEstantially higher quality and on-time-complete delivery performance standards. It also required that we work in cells comprised of work teams, in which each team memEer had to complete a numEer of previously independent MoE functions. To accomplish these strategic imperatives, we actually did have to live up to the stated values of our mission statement³to provide customer satisfaction, act with integrity, work in teams and in fact Ee excellent. 2ur people needed to Ee responsiEle, accountaEle, disciplined, ÁexiEle, creative thinkers as well as doers. They required skills not only in expanded MoE functions, Eut also in decision-making, communications and interpersonal relations. However, none of these capaEilities existed to a sufÀcient degree at the time. To create a new culture that would encompass these characteristics, we needed to estaElish new processes for product development, order entry, -IT manufacturing, quality and kitchen delivery. While the mechanics of these processes were relatively straightforward, the challenge was in getting our people to accept the magnitude of the changes required. They needed to give up old haEits, emErace new ones and learn new skills and Eehaviors. In 1989, we initiated several pilot-team programs in our manufacturing plants and trained our people in various new skills, such as simplifying work Áows, reducing cycle times, lowering inventory levels and eliminating defects. We used outside consultants to design these programs, and in some instances to lead them. My hope was that the pilot programs would Ee so successful that others in the organization would naturally want to participate. Unfortunately, after a two-year attempt, the pilot programs failed. The teams typically didn·t have the under-

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standing or support either from people higher up in the organization or from those in other departments with whom they interacted. Instead of small Àres spreading rapidly, our pilot teams Eecame small Àres quickly snuffed out. In 1991, with the help of another consultant, we introduced a cultural vision of continuous improvement whereEy all employees would learn to “make decisions in the Eest interests of the company.” We communicated this vision across the organization. We also estaElished more than thirty new cross-functional teams comprised of people from different functional areas, each sponsored Ey a senior manager. In addition, Àfty natural work groups, consisting of people who normally worked together, Eecame “Daily Improvement Process” DIP teams empowered to suggest ideas and implement them within their work areas. Finally, we estaElished an in-house training and development department and designated several full-time facilitators to assist in training and team development. 2utside consultants were used primarily for concept development and the training of our own facilitators³not for implementation. Although these efforts generated some signiÀcant performance improvements, they created proElems of their own. Many of the cross-functional teams proposed solutions were not in step with the overall priorities of the company. DIP teams lacked momentum once easy to implement changes were completed, and people who were not yet involved in the process expressed frustration that they were not included. In mid-1992, we called a “time out” to assess where we were. We decided to start over. 2ur senior leadership team concluded that using a somewhat “canned” management process Erought to us Ey outside consultants was not a good Àt for our organization. We needed a tailored program that would take into account our culture as it existed at the time and as we wanted it to Eecome. We concluded that I would

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write four lessons to Ee delivered to all employees on a “levelto-level” Easis, where, starting at the top of the management hierarchy, supervisors would teach lessons to those who worked directly for them and who would, in turn, teach their own direct reports until eventually everyone in the organization would Ee taught each lesson. The lessons included a standardized process for doing work, essential communication skills, an exercise modeling teamwork and continuous improvement and a methodology for developing client-provider relationships. We had originally anticipated that it would take six months to complete the training. It actually took three years. We found that people enMoyed the lessons Eut then went quickly Eack to their prior techniques and methodologies without changing their Eehavior. We called another time out to assess the situation. We concluded that Eefore teaching a lesson to a lower level, the higher level team Àrst had to exhiEit that the core-training principles were actually practiced. We created internal advisors drawn from different areas of the organization who conducted workshops for each team and assessed their mastery of the principles. Gradually, the training worked its way through the organization and Eehaviors Eegan to change. People took greater ownership in their MoE responsiEilities and spent time thinking aEout how Eest to do an activity rather that Must doing it as they had done it in the past. We saw many small actions initiated in teams generating signiÀcant improvements in quality, safety, delivery, cost and other performance targets. The level-to-level training Eecame one of two mechanisms that together were the most instrumental in creating our desired cultural change. The second one was initiated in 1993 and consisted of a Àve-day leadership retreat. Each session was limited to twenty-four participants, who came from the managerial and professional ranks across the organization. I

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wrote most of the lessons and taught the class for each of the Àve days. I was Moined each day Ey a separate memEer of senior management who participated in the training. The lessons included topics ranging from decision-making and planning to meeting management, leadership styles, teamwork, values, methods of discourse, cultural change and methods for resolving ethical dilemmas. Each class was divided into three teams which did special proMects, and the evenings were spent in dialogue sessions and story telling. Participants left these sessions, not only with speciÀc knowledge and skills Eut, more importantly, with a heightened sense of the purpose of the company, its values and the roles they could play as part of the organization and its future. For some, the sessions were transformational to their personal lives, enhancing their relationships with spouses and children. With the success of the Àrst retreat, we conducted four more in 1994 and two in 1995. We had a total participation of one hundred Àfty people or more than twenty-Àve percent of our total salaried workforce. As more and more people completed the level-to-level training, the leadership retreats and the training for the various other programs and processes we had initiated, we gradually reached a critical mass that tipped the organization toward our desired culture. Training in new processes was a critical element that enaEled the vast maMority of our people to achieve the higher performance expectations of our new strategy and culture. However, even with this, not all people were capaEle of meeting these standards and had to Ee separated from their prior positions. While we made every effort to Ànd other more appropriate positions within the company, in cases, especially for those higher up in the management hierarchy, separation from the company was the only alternative. This was particularly difÀcult where people had performed well relative to the organization·s past expectations.

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By 1995, we had created a culture that met, at least to a minimum degree, the needs of our 1995 Vision and our mission statement values of customer satisfaction, integrity, teamwork and excellence. Although it would Ee a continuing challenge, we had for the most part the right people in the right jobs. 2ur people now had not only the Easic education, training and tools that enaEled them to do their existing MoEs well Eut also an orientation toward making improvements and adopting necessary change. We were ready for the next step in the company·s evolution. 1996 TO THE PRESENT: In 1996, -ake Gosa replaced me as CE2, serving until 2007. -ake had Moined the company in 1991 as our Vice President of Sales and Marketing. In 2007, Kent Guichard, who had Moined us in 1993 as our Chief Financial 2fÀcer, succeeded -ake as CE2. While the company·s history under their respective reigns is each a story in itself, I will ErieÁy summarize this period. The 1995 Vision created a strategic and cultural platform which we could Euild upon for the future. The home center industry continued to consolidate with only two maMor players remaining, The Home Depot and Lowe·s. American Woodmark emerged as the primary provider of stock kitchen caEinets to Eoth of these accounts. 2ur position with these two entities together with the expansion of our TimEerlake Euilder program enaEled us to Eecome a growth company gaining signiÀcant market share and estaElishing the economies of scale necessary to compete on a national level. 2ur growth was supported Ey many new process improvements³a numEer of which were signiÀcant innovations within our industry. These included initiatives in product development, manufacturing, quality, customer service, delivery and management information systems. In the human resource arena, we estaElished comprehensive programs in recruiting, employee orientation, performance planning and

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appraisal, employee development and succession planning. The Àve-day leadership training initiated in 1993 has continued with over 600 people attending since its inception. American Woodmark·s strategy has Eeen to compete solely within the caEinet industry, realizing that our Eusiness is cyclical and that recessions are likely every seven to eight years. We have accepted this eventuality and have prepared for it Ey Euilding signiÀcant cash reserves with the intent of weathering whatever storm might Elow our way. The housing industry peaked in 2006 and dropped precipitously since. Although our volumes were down suEstantially and we lost money, we maintained a strong cash reserve, gained market share and enhanced our competitive posture coming out of the downturn. RESULTS

As shown in ExhiEit 3.1, sales for American Woodmark have risen from 30 million in 1981 to a peak of over 800 million prior to the most recent housing downturn. Income has grown with the exception of three periods when we lost money during severe economic recessions. Currently, assets total more than 250 million and shareholder equity is in excess of 130 million and the company has returned to proÀtaEility. ExhiEit 3.2 presents the company·s Ànancial strength, where cash-on-hand of over 70 million now exceeds total deEt of less than 25 million. The company is the third largest caEinet manufacturer nationally and the industry leader in the stock-segment category. Although the organization has made difÀcult choices in the downturn, including layoffs and plant closings, we have maintained a highly valued relationship with employees. This relationship has Eeen supported Ey our Eeing very candid aEout the company·s reality and Ey dealing with employees with respect, integrity and a sense of caring. Key cus-

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tomers and suppliers view the company more as a partner than as a traditional Euyer and seller of goods, and we work to Ee good citizens in our communities. 2ur stock price has increased from a low 1.25 per share in the 1990-1992 recession to aEove 25 per-share coming out of the most recent recession. While a cultural vision is something to aspire to, I don·t Eelieve that it can ever Ee fully achieved. American Woodmark has performed reasonaEly well relative to the culture I envisioned in 1977 and the mission statement we estaElished in 1986. We are reminded of this when new hires reÁect favoraEly upon our culture in comparison to those of organizations where they had previously worked. In summary, American Woodmark is viable in that we achieve our purpose of effectively providing kitchen and Eath caEinets to the American family; sustainable as evidenced Ey two highly successful CE2 transitions, a strong Ànancial posture and a suEstantial long-term competitive advantage; and valued in that we provide superior returns to our various stakeholders. REFLECTIONS

THE STORY: In his Eook, The Black Swan Nassim Nicholas TaleE states that we give meaning to what we experience Ey creating logical cause-and-effect narratives to explain what are often random events. This is certainly evident with the American Woodmark story. Although I have attempted to descriEe the elements of chance that related to key turning points in our company·s strategic direction³such as our entry in 1980 into the home center and Euilder-direct markets and the creation of our 1995 Vision, I have not included many of the missteps, misunderstandings of reality, impacts of every day experiences and the unknowaEle and uncontrollaEle events that helped shape our history. For example, we acquired two

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small caEinet companies, which Eecause they failed, were not included in the narrative. However, together they inÁuenced our mindset to stick with our knitting and grow organically rather than through further acquisitions. Also missing are the many errors we made in hiring senior executives who proved unsuccessful and whom we later replaced. RISK: The level of Ànancial risk³as measured Ey American Woodmark·s cash availaEility and deEt-to-equity ratios³played a key role in our history. The only way that I and my cofounders could possiEly create American Woodmark was Ey our willingness to assume an extremely high level of risk, as evidenced Ey our 45-to-1 deEt-to-equity ratio at the time of our startup. 2nce American Woodmark was created, however, a priority was to sustain the Eusiness, so it Eecame imperative that we reduce our Ànancial risk to a safe level as soon as feasiEle. We were very lucky in our early years that there were no negative events that we were unaEle to aEsorE. By 2006 we had estaElished signiÀcant cash reserves and a very low deEt-to-equity ratio of 1-to-5. 2ur Ànancial strength enaEled us to successfully survive a dramatic unlucky event, the 60 percent drop in our industry·s volume from peak to trough from 2006-2009. VISION AND ACTION: While uncontrollaEle events³or luck³certainly played a role in our history, there were, however, aspects of the narrative that I Eelieve do demonstrate cause-and-effect experiences. From its inception, I wanted American Woodmark to Eecome the “Eest-run” company in the caEinet industry. I wasn·t focused upon a particular sales or earnings target. Rather, I wanted the company to Ee among the industry leaders in total revenues and to Ee the best overall when multiple metrics, such as quality, service, customer care, proÀtaEility and shareholder returns, were considered. Being the Eest also meant having a culture of the highest values, where our people could “prosper and grow.”

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2ver time the aEove conception was codiÀed: Àrst, with the creation of our mission statement in 1986; second, with successive six-year visions Eeginning with our 1995 Vision and third, with leadership training that incorporated many of the ideas descriEed in the essays and lessons of this Eook. Although given further shape, the essence of what was originally pictured remained intact. While we held Àrm to the primary elements of our vision, the actions we took to achieve them changed continually. This was a reÁection of Eoth the changing environment we lived in and the reality that the actions we took were often inadequate. Although I don·t know whether our Eatting average for decision-making was any Eetter than other organizations, I do Eelieve that holding fast to our vision and making timely corrections to actions that did not support it were key factors in our success. LEADING IN GOOD TIMES AND BAD: I found that choosing a proper direction was easier in tough times³resources were limited, choices were fewer and people wanted to see the organization take action, even if painful, Eecause they feared the status quo. 2n the contrary, in good times there were more resources, more choices and people resisted change Eecause they were comfortaEle with where they were. In good times the right choices were not oEvious, and there was often a danger of taking the organization in the wrong direction. While decision-making was easier in tough times, the emotional challenge was not. I thought it imperative that I proMect conÀdence and optimism to those with whom I engaged, even when in actuality I did not feel that way. I was conscious that people continually monitored my “mood,” and if they saw a crack in my facade, they might panic, thinking that “if he is worried, then I should Ee really worried.” When I did falter, word would get Eack to me of comments such as, “What·s wrong with Bill?”

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In tough times, people had an emotional need to see quick results from actions taken. Unfortunately, there were often signiÀcant lags Eetween actions and outcomes. Even if actions taken were excellent, no one felt good if operating results were poor, especially if we were losing money. Convincing people to Ee patient and stay the course Eecame a continuing challenge. Early in my career I felt a paternalistic responsiEility to protect employees from Ead outcomes. As mentioned in the narrative, I felt a sense of failure and remorse when I was unaEle to do so. Eventually I realized that the employees had responsiEility for their own lives and that, rather than trying to protect them from the harshness of reality, my responsiEility was to help them live through it. We did this Ey giving employees timely information aEout the status of their MoEs, treating them with respect, and helping them as Eest we could through transitions. It was easy for me to remain grounded and humEle when times were tough Eut not when they were good. For example, during the mid-1980s, our senior management team and I assumed that our leadership position in the home center segment was somewhat invulneraEle, when in fact our competitors were gaining on us and preparing for us to falter³which we eventually did. This event was a painful Eut good learning experience. Since then, I attempted to Ee vigilant against letting huEris set in, either for me or for those around me. YOUR STORY: By sharing the American Woodmark story, I do not mean to imply that it should Ee a template for your organization·s story. Rather it is intended to stimulate your thinking as to what is possiEle for you and your organization and what actions you may wish to consider for getting there. While each organization·s circumstances are different, I Eelieve the principles presented in this Eook will EeneÀt any organization in its quest to Eecome exceptional.

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SECTION

2

Section 2

ESSAYS OVERVIEW This section presents a collection of essays on a range of suEMects relevant to the creation of exceptional organizations. They are divided into four parts. “The Vision” descriEes what is possiEle for Eoth exceptional organizations and the individuals within them. “The Leader” presents the leadership imperatives necessary to create and sustain exceptional institutions. These imperatives reÁect the organizing principles of inspiration and right person/right job. “Processes and Tools” offers various Eeliefs and processes supporting the vision-driven and value-based organizing principles. “The -ourney” shares the challenges that face those attempting to create such exceptional institutions. Each essay includes “4uestions for ReÁection.” These questions are intended to help readers relate the essay topic to their own experiences and to challenge their existing Eeliefs on the suEMect. Each essay is also cross-referenced to corresponding essays and lessons that relate to it.

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Section 2.1

THE VISION OVERVIEW This section includes three essays that give the reader a picture of what is possiEle. The Àrst, “Yes, Even in Business,” promotes a vision comEining individual and organizational self-interest with serving a higher cause and Eehaving according to society·s highest values. The second, “Nice Guys Finish Last,” provides a vision of moral excellence in which assertiveness and self-determination are not antithetical to caring and concern, Eut are two traits that can Ee emEraced Ey the same individual. The third, “To Be Exceptional,” presents an example of an exceptional organization and a methodology for creating one.

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YES, EVEN IN BUSINESS I Eelieve we can create institutions³yes, even in Eusiness³that not only achieve the self-interests of memEers Eut also serve a greater good and act according to society·s highest values. Some years ago, I attended a Àve-day workshop where I was the only Eusiness person among psychologists, counselors and teachers. After the third day, one from the group came to me and said somewhat sheepishly, “We didn·t know what to expect when we learned you were in Eusiness. You aren·t that Ead after all.” I realized I had shaken one of their longheld Eeliefs aEout people in Eusiness. I did nothing, however, to challenge a second one: which was, Eecause they thought their careers to Ee virtuous, so were they. AEout this time I read Victor Frankl·s classic³Man’s Search for Meaning—where he shared his experience in Auschwitz. I was moved Ey his portrayal of a camp commander who used his own money to Euy medicine for prisoners and of a guard who shared his Eread rations with them. Frankl contrasted this Eehavior with the aEsolute Erutality of some Capos, who were prisoners chosen Ey the camp authority to control fellow prisoners. Frankl concluded that people were decent or indecent regardless of where grouped in society. Throughout my career I have Eeen a student of organizations³large and small, simple and complex, for proÀt and nonproÀt. I would categorize them more Ey the character of their leadership than Ey the nature of their structures. Any structure 52

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may Ee oriented toward self-interest alone or a Ealance Eetween individual needs and service to others. It is the leader who determines whether we have one orientation or the other. But who determines who leads? The traditional view is that “leaders lead” and “followers follow,” where who leads is Eased upon position or rank. If we deÀne “leadership,” however, as “the act of inÁuencing people to follow a particular direction,” then whenever we do so³regardless of our formal status³we Eecome leaders. From this perspective, everyone is a leader and everyone a follower. In any situation where two or more people come together, we can Eecome the creators of our own communities³ whether we are CE2s of corporations, leaders of non-proÀts, coaches of Little League teams, teachers with rooms full of third-graders, coworkers on a shipping dock or guards sharing Eread with prisoners in a concentration camp. Who determines whether we have an orientation toward self-interest alone or one that also serves a greater good? We do. QUESTIONS FOR REFLECTION

z Have you experienced people who have Eehaved Eadly within institutions that you considered virtuous? z Have you witnessed good Eehavior within organizations that you thought were morally unÀt? RELATED CHAPTERS

z Essays:

Nice Guys Finish Last: 54 The Servant as Leader: 65 Everyone a Leader: 73

z Lesson:

Leaders and Followers: 158

5

NICE GUYS FINISH LAST Nice guys Ànish last³so goes the traditional wisdom. But Eeing nice³that is, expressing a “concern for others”³does not mean Eeing weak, a pushover or unassertive. 2n the contrary, depending upon the circumstances, the same individual can Ee tough, competitive and assertive as well as sensitive and caring. I Eelieve that organizations that foster the moral development of their memEers, and thereEy encourage the appropriate use of a range of Eehaviors, give their organizations a tremendous competitive advantage over those that do not. I recall the very Àrst time I presented a training module titled “Caring” to a management team at one of American Woodmark·s manufacturing plants. After dinner that evening, we held a dialogue session with the group at which each person had the opportunity to comment on the training module or any other topic relevant to the company. 2ne woman, full of emotion, related that she recently had a death in her family and that she was overwhelmed Ey the outpouring of support she received from the company and her coworkers. To her, this Eehavior spoke to what the company was all aEout. In her Eook, In a Different Voice, Carol Gilligan descriEes three stages of moral development. The Àrst is survival, when infants focus solely upon themselves and their own needs. The second occurs in early childhood when children have a sense of Eoth themselves and others. This stage is typically different for Eoys than for girls. Women in most societies are 54

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the primary care givers. Along with this responsiEility comes the role of maintaining relationships in the family and the community. Girls identify with their mothers whom they see modeling these Eehaviors. For girls, the second stage of moral development is caring. They develop a sense of responsiEility for others, cooperation, equality and community. Boys, in contrast, model their fathers, whom they see as going outside the family to hunt, Àsh or earn a paycheck. What is right is to stand on one·s own and develop skills to impact the world. Boys realize that there are “others” and that they must distinguish themselves in comparison. For Eoys, the second stage of development is identity. They seek achievement, competition and higher relative positions. They value autonomy, independence and freedom. The formation of rules, the administration of Mustice and the concept of fairness Eecome valued Eecause they set guidelines for achieving these distinctions. The third stage of moral development is maturity, whereEy men and women Eoth have a sense of identity and caring. 2nce a man achieves a separate identity his challenge is to see his Eehavior from another·s perspective and to take responsiEility for others as well as for himself. A woman, who in adolescence estaElished a sense of caring, must learn that she has a separate identity, and that she is at least as worthy of care as someone else. At maturity Eoth men and women emErace concepts that only one sex valued at stage two. These are justice, caring, autonomy, equality, fairness, truth, connection, identity, freedom, achievement, independence and responsibility. In The Soul of Corporate Leadership, William -. 2·Brien linked the development of high performing value-Eased organizations with the moral development of their leaders. He indicated that much of American industry is run Ey a command-and-control governance structure, in which leaders tell their suEordinates what to do and then check to see if it is done.

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2·Brien contrasts the command-and-control approach with a value-based structure, where the leader points out the direction, and the memEers Ànd the Eest way to get there. With a command-and-control structure, what is important is “who” is in charge and actions are focused on pleasing the Eoss, not making a mistake and keeping one·s MoE. While commandand-control may Ee effective in situations where all of the necessary knowledge is held Ey the leader, it is of lesser value in a complex world where no one individual has all the answers. Entities which emErace command-and-control governance structures are “traditional organizations” as descriEed in the Introduction. Their stakeholders pursue their own self-interests and relate to each other on a transactional Easis of “value received for services rendered.” With a value-Eased orientation, the focus is upon whatever is in the Eest interests of the enterprise. In a value-Eased structure, work is organized not only to achieve speciÀc tasks Eut also to serve the human need for purpose and the fulÀllment of each memEer·s potential. Stakeholders pursue Eoth “self-interest” and “concern for others.” Value-Eased enterprises act according to universal human values. What is important is that organizational leaders and memEers not only emErace these values Eut also practice them even when there are motivations to do otherwise. 2·Brien descriEes a goal of achieving moral excellence, which is the equivalent of Gilligan·s description of moral maturity. The phrase “nice guys Ànish last” has its philosophical underpinnings in the popular work of Ayn Rand, who in her Eook, The Virtues of SelÀshness asserts that “concern with his own interests is the essence of a moral existence, and that man must Ee the EeneÀciary of his own actions.”1 Using Gilligan·s nomenclature, Rand never reaches stage three of moral development. Rather she views stage-two identity³which equates to “the pursuit of self-interest”³as the highest mor-

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al value. From Rand·s perspective identity is mutually exclusive with caring³or “concern for others,” which she does not see as a value at all. It is a fundamental premise of this Eook that identity and caring, or “self-interest” and “concern for others” are not mutually exclusive Eut rather are Eoth elements of a range of values comprising the highest level of moral formation, as articulated Ey Gilligan and 2·Brien. This premise is further supported Ey Riane Eisler, author of the landmark Eook, The Chalice and the Blade. Eisler descriEes two social systems that over the history of humankind have governed the range of human interactions from individuals to nation-states. The Àrst, the Dominator Model, is comprised of rigid hierarchies, ranking³typically of men over women, competition, violence and command-and-control governance structures. The second, the Partnership Model, is characterized Ey ÁexiEle hierarchies, ranking Ey merit³while retaining formal hierarchal structures, the use of power to accomplish a task more so than power as control, equal status for men and women, nonviolence, mutual relationships and the emEracement of Eoth identity and caring as. Although the Dominator Model has governed social systems for most of human history, Eisler notes many instances where the Partnership Model has Eeen predominate. The principles in this Eook are consistent with Eisler·s Partnership Model. American Woodmark went through its own culturalchange initiative to convert from a command-and-control to a value-Eased governance structure. We had one group of people who immediately welcomed this transition Eecause the new approach Àt their own sense of values, a second group who deÀnitely would never adapt to the new culture and who would eventually leave the organization through their own volition or that of the company·s and a third for whom it was unclear as to whether or not they could make the transi-

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tion. As part of this cultural-change effort, as mentioned in the case study, we conducted a Àve-day leadership retreat for individuals with supervisory responsiEility. The retreat was conducted Ey our senior leadership team in classes of twenty-four at a time. 2ver the years, more than 600 people attended this retreat. Two in particular stood out. -im had worked in the predecessor company to American Woodmark. I recall when I had Àrst Moined the company a plant manager told me that he used -im to agitate the union representatives among the workers until they would Ee so intimidated that they would leave the organization. When -im came to the retreat, I douEted that he would ever make the transition to the culture we desired. I could not have Eeen more wrong. AEout a week after the class, someone came up to me and said, “What did you do to -im?” Everyone who worked with him said that he came Eack from the retreat a new person, treating people with care and respect that he had rarely exhiEited Eefore. Rick, who worked in a different factory, was very strong technically Eut was aErasive and demeaning to those who worked for him. He, too, appeared unlikely to adapt to the new culture, Eut like -im he returned from the retreat a “new person”³so much so that his wife called his plant manager to thank him for sending Rick to the retreat and asked if she could attend a future session herself. In less than a week, -im and Rick each went through personal transformations that changed their lives. 2rganizations can foster their memEers· growth toward moral maturity. Those that achieve this status are neither “always nice” nor “always tough,” Eut rather they choose Eehaviors that Eest Àt the circumstances. In essence, they can play all of the keys on the piano to their own and their organizations· EeneÀt. Yes, even nice people can Ànish Àrst!

Nice Guys Finish Last

QUESTIONS FOR REFLECTION

z How do you see your own moral formation? How do your Eehaviors reÁect your values? z What is your organization·s governance structure? How does it relate to the command-and-control and value-Eased structures presented here? RELATED CHAPTERS

z Essays:

The Servant as Leader: 65 The Survival of the Fittest: 85

z Lessons: Values: 141 Culture: 150

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TO BE EXCEPTIONAL I Eelieve that we can create exceptional organizations that are viaEle, sustainaEle and valued³viable in that they achieve their missions and act according to society·s highest values,³sustainable, Ey Eeing viaEle over time and³valued in that all stakeholders EeneÀt to a greater degree than they would with alternative entities. Exceptional organizations are characterized Ey inspiring visions, well-executed strategies for superior competitive advantage and positive cash Áow, strong value-Eased cultures and the placement of the right people in the right MoEs. Such organizations are exceptional Eecause there are so few of them. I attended a seminar some years ago on “the learning organization” led Ey Peter M. Senge, author of The Fifth Discipline. Exceptional organizations, as descriEed here, have many characteristics in common with learning organizations as he deÀned them. Listening to Senge·s presentation, it was clear that such entities would Ee vastly superior to traditional structures. During a Ereak, I asked Senge how many organizations had achieved this status. He responded, “Very few.” When asked why, he said, “Because it is so very hard to do.” Few leaders are even aware of the possibility of their organizations Eeing exceptional, and fewer still are those who aspire to create such entities. For those who do, three criteria are preconditions for success. Leaders must have the 60

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requisite wills, skills, values and open mindedness. Second, they need the necessary resources to keep their organizations functioning until they create a competitive advantage that generates a sustainaEle cash Áow. Finally, they need the support of whoever they are accountaEle to³owners, directors or others higher in their organizations· hierarchies. For those organizations that meet these criteria, the task to create exceptional organizations is simple in concept. The Àrst step is to create a clear vision of the desired organization. While this vision will Ee unique for each entity, it will include the “viaEle,” “sustainaEle” and “valued” elements descriEed aEove. The second step is to understand the organization·s current reality relative to its desired state. Where there is a discrepancy Eetween the two, the third step is to take action to move the current reality toward the organization·s vision. Actions taken can Ee evaluated for results and modiÀed as appropriate until the desired state is achieved. While simple in concept, the execution of this endeavor is difÀcult in practice. Strategies for competitive advantage may Ee elusive. There will Ee resistance to change, false steps taken and the diversion of energy and resources to the immediacy of other priorities. To carry this effort to fruition requires a strong leader who will remain resolute in spite of these oEstacles. Depending upon the size of the entity and the distance to Ee traveled, the transition may take not months Eut years. At the seminar Must mentioned, I also asked Senge if he could suggest someone I could talk to who had successfully made such a transition. He recommended a person from Hanover Insurance, William -. 2·Brien³introduced in the preceding chapter as the author of The Soul of Corporate Leadership. 2·Brien Moined Hanover Insurance in 1971 to work for its CE2 -ack Adams, who 2·Brien then succeeded in 1979. At the time 2·Brien Moined Hanover, the company

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was ranked in the Eottom of every industry comparison. The two set out to create what 2·Brien called an organization of “unsurpassed excellence,” which he said he couldn·t deÀne Eut which he would recognize when he saw it. 2·Brien said that it took Hanover twelve years to achieve this vision. By 1991, upon his retirement, the company had reached the top of its industry rankings. Its earnings per-share were fortytimes greater that they were in 1969. Although 2·Brien said one could not put a numEer onto it, the atmosphere in the organization had gone from resignation, compliance and despair to engagement, commitment and hope. At the time I met 2·Brien, American Woodmark was struggling through the third year of a maMor organizationalchange effort. We were Eehind on our performance expectations. We had missed key milestones, we were losing money, and to some, our ultimate success was in douEt. Hanover·s results gave us a sense of what was possiEle. 2·Brien provided support and good counsel and soon Eecame a mentor to me and other memEers of our senior leadership team. He gave us the lift we needed to persevere. Although the decision to undertake a maMor organizational transition cannot Ee taken lightly, given that the preconditions are met, there is a very good proEaEility of success. For those who prevail, the creation of an exceptional organization is more than worth the challenges necessary to Ering it into Eeing. QUESTIONS FOR REFLECTION

z What are the aspirations of your organization? Can you frame them in terms of it Eeing “viaEle,” “sustainaEle” and “valued?” z What is the status of your organization today relative to the aEove characteristics?

To Be Exceptional

z If your organization aspires to Eecome exceptional, does it·s leadership have in place the three preconditions for success? RELATED CHAPTERS

z Essays:

Imagine and Inspire: 69 What Do I Want?: 78 Right Person  Right -oE: 114

z Lessons: Vision-Driven 2rganizations: 130 Culture: 150

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Section 2.2

THE LEADER This section presents three essays that explore leadership principles that impact the creation and maintenance of exceptional organizations. First, “The Servant as Leader” demonstrates that it is imperative that leaders put the mission and the well-Eeing of their institutions ahead of their own personal gain. Second, “Imagine and Inspire” shows the power of inspiration relative to rewards and punishments as a source of motivation. Third, “Everyone a Leader” descriEes the extraordinary potential that can Ee released when all memEers of organizations see themselves as Eeing either leaders or followers depending upon the situation.

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THE SERVANT AS LEADER I Eelieve that for organizations to Ee exceptional, they need servant leaders at their helms³those who serve causes greater than their own self-interests and who inspire their memEers to do the same. CeleErity CE2s need not apply. What do Ken Lay of Enron, Bernie EEEers of Worldcom, and Dennis Koslowski of Tyco have in common? That·s right. They were all included in a Eook puElished in 1999 that proÀled the Àfty “very Eest Eusiness leaders in America.”ñ Not long after their inclusion, they were each found guilty of criminal Eehavior regarding their Eusiness conduct. The three were further distinguished in a 2008 article titled, “The Seven Most Crooked CE2s of All Time.”ò While these three displayed some of the worst Eehavior, the puElic is continually outraged with headlines of other CE2s who negotiate unseemly compensation packages. The most egregious of these are those who have overseen the demise of their corporations, Eut who nevertheless have garnered outlandish exit pay or, if they stayed, “retention Eonuses.” Such Eehaviors exemplify self-focused leadership, where the primary motivation is to serve one·s own self-interests. For such leaders, acting in pursuit of their organizations· purposes is not an end in itself, Eut rather a means to an end. If they Eecome celeErities, it is Eecause they have created a focus upon themselves, rather than their organizations. Institutions led Ey such individuals are characterized Ey Eehaviors to “please the Eoss,” where doing so garners rewards and 65

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failure to do so leads to punishments. While such Eehaviors are motivated, they are not inspired. Furthermore, pleasing the Eoss may have nothing to do with actually achieving an organization·s purpose. Where this happens, Eehaviors are soon misaligned. Finally, self-focused leaders have little interest in grooming competent successors Eecause any EeneÀts of doing so would fall on someone else·s watch. Rarely is a different type of leader in the headlines. I Àrst met one such individual at a hotel at Boston·s Logan Airport. He had overseen the creation of a unique high-performing organization and, since his retirement, had worked as a consultant helping other organizations do the same. At the end of our discussion, I indicated that I would like to engage his services, Eut that I needed to wait until American Woodmark³which at the time was struggling through a severe recession³could afford them. He responded that he would work for us for free. I have served as a director on several for-proÀt and nonproÀt Eoards. During my tenures, there were Àve occasions where different CE2s declined higher pay when offered. In each instance, they were concerned that the higher compensation, or simply the receipt of a pay increase at all, was inappropriate given their organizations· circumstances at the time. To descriEe Eehaviors such as these, RoEert Greenleaf, in his Eook of the same title, coined the term Servant Leadership. Servant leaders are motivated to pursue causes greater than their own self-interests and when necessary make sacriÀces to do so. Paradoxically, their orientation to serve rather than Ee served is completely counter to the popular perception of what leadership is aEout. -im Collins, in his Eestseller, Good to Great, reinforces the importance of servant leadership when he characterizes the traits of corporations that successfully transformed themselves from Eeing good performers within their respec-

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tive industries to Eeing great. Each of these organizations was led Ey what Collins calls a level-5 leader³“an individual who Elends extreme personal humility with intense personal will.”3 Level-5 leaders Àt the description of servant leadership in that their ego needs are channeled Àrst and foremost to the institution, and not themselves. Servant leaders are humEle. They are good listeners and are more likely to seek the truth than assume they already know it. They are effective delegators and good mentors. They are also strong-willed and results-oriented. 2rganizations characterized Ey such leadership are more likely to have inspiring visions, Eetter understanding of reality, greater alignment of Eehaviors in support of their visions, stronger results and Eetter development of their people for the future. Self-focused leadership and servant leadership are two ends of a spectrum. While many people have the potential to move up the spectrum toward greater servant leadership, there are others so egocentric that they cannot and never will. The owner of the predecessor company to American Woodmark created a culture to “please the Eoss,” in which self-focused leadership was the norm. Through selective hiring, promotions and either voluntary or involuntary departures, American Woodmark gradually created a culture of servant leadership. A Àrst stage in this transition was the choice of cofounders of American Woodmark who Àt the servant-leadership mold. A second, more conscious stage was the inclusion of integrity³doing what is right³as one of the four pillars of our mission statement adopted in 1986. Since doing what is right is almost synonymous with servant leadership, using “integrity” as a criterion for personnel decisions naturally led to the advancement of servant leadership and the discouragement of self-focused leadership. More recently, this transition has Eeen further strengthened Ey

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American Woodmark·s formal employee performance and development systems. Employees are evaluated according to the dimensions of MoE performance and cultural Àt with the company·s mission statement and supporting values. We can create cultures that foster servant leadership where those who have the potential for such Eehavior are nurtured and those who do not either quit or are asked to leave. While not the only step, a culture characterized Ey servant leadership is fundamental to the creation of exceptional organizations. QUESTIONS FOR REFLECTION

z Have you witnessed examples of self-focused leadership? 2f servant leadership? z Where do you see yourself on the spectrum from selffocused leadership to servant leadership? RELATED CHAPTERS

z Essays:

Yes, Even in Business: 52 Imagine and Inspire: 69 Right Person  Right -oE: 114

z Lesson:

Leaders and Followers: 158

8

IMAGINE AND INSPIRE I Eelieve in rewards and punishments. I also Eelieve that, while necessary, they are greatly overemphasized as a source of motivation. Better yet is to Ee inspired! 2rganizations use rewards and punishments to control Eehavior, appealing to what its memEers want³money, recognition and advancement, or Ey avoiding what they don·t want³less money, reprimands or MoE loss. Effective rewards and punishments, such as compensation systems, scorecards and performance evaluations help align individual actions to what is Eest for the enterprise. The difÀculty arises when these Eecome the predominant or sole source of motivation. When I was Àfteen, my father took me to the movie Spartacus, the story of a slave in ancient Rome who led a reEellion of fellow slaves. While slave revolts were not uncommon, they were soon put down Ey Roman legionnaires. Under the leadership of Spartacus, however, his Eand of slaves overwhelmed local garrisons and regional forces, freed other slaves to expand their ranks and moved from Sicily northward toward the capital in Rome. Finally, the emperor Erought to Eear the full force of the Roman army and in a climactic Eattle crushed the slave forces. After the Eattle, the Roman commander gathered the surviving slaves together and told them that they could avoid a torturous death if they would only identify “the slave called Spartacus.” The actor Kirk Douglas, who played the role of Spartacus, was aEout 69

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to step forward when another slave advanced Àrst saying, “I am Spartacus.” A moment later, a second did the same, then another, until there was a momentous chorus of voices thundering, “I am Spartacus.” More recently, I attended the inauguration of Dr. Tracy Fitzsimmons, President of Shenandoah University. The featured speaker was Dr. Maya Angelou. She Àrst spoke of the dark clouds that gather in all our lives, Eut then she imagined a rainEow emerging from them leading to a Erighter day. Her message was not only one of hope for those who suffer, Eut also a call for us to Eecome the rainEows in other people·s lives. After the event, I witnessed Dr. Angelou meeting with a select group from her audience. I watched as she held out her arms to a student maMoring in voice. I only heard a snippet of their conversation³Dr. Angelou asserting, “The Àrst language you want to learn is Italian.” The student was hanging on her every word. Behaviors Eased upon rewards and punishments are dependent upon the external stimuli of outside parties. If the rewards or punishments are removed, there is no motivation for Eehavior. Those who are inspired, however, are intrinsically motivated³they “own” the desired outcome and have a sense of purpose in making it come into Eeing. They more likely have a greater sense of self, a heightened presence and stand taller in their own shoes. Since even the Eest systems of rewards and punishments cannot anticipate every circumstance, Eehaviors thus motivated are often misaligned with what is Eest for organizations. 2rganizations that inspire their memEers have two advantages. First, those inspired look Eeyond their self-interests to act according to the Eest interests of the enterprise. Second, motivation Eased upon an internalized sense of purpose is usually much more powerful than that Eased upon external stimuli alone. Those organizations whose memEers

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emErace a shared sense of purpose will enMoy a competitive advantage over entities that rely solely upon rewards and punishments. To lead Ey inspiration is not the same as to lead Ey charisma. Either servant leaders or self-focused leaders may Ee charismatic. Followers of those who are servant leaders have a sense of purpose and a heightened sense of self. While followers of self-focused charismatic leaders also have a sense of purpose, their sense of self is diminished. For this latter group, allegiance is not so much to a higher cause, Eut rather to such leaders themselves³following them wherever they go and doing whatever they command. However, it is not critical that leaders Ee charismatic to Ee inspiring. Winston Churchill inspired the British people to Àght on in the Battle of Britain. I have never heard anyone descriEe him as charismatic. 2ther than my parents, the most inÁuential person in my youth was my high school footEall and EasketEall coach. He had control of the ultimate carrot and stick³whether or not I played in a game. However, it was his strength of character that inspired me. He once kicked three star players off an undefeated EasketEall team for a rules infraction, and the team then went on to lose the remainder of its games. He was steadfast in doing what he thought was right regardless of the personal consequences to him. His character still inspires me, even though my playing days are long over, and he is now deceased. Who do you inspire? Who will willingly suffer for a cause you champion? What snippet in your life will Ee the rainEow that expands someone·s horizon? I can imagine a rapt audience in one of the world·s great opera houses hanging onto every note of a grown woman singing an aria from Verdi·s La traviata.

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QUESTIONS FOR REFLECTION

z Have you Eeen inspired Ey anyone in your life? If so, how did this come aEout? z How effective are you in using rewards and punishments in inÁuencing others· Eehaviors? How effective are you in inspiring others? RELATED CHAPTERS

z Essay:

The Servant as Leader: 65

z Lesson:

Culture: 150

9

EVERYONE A LEADER I Eelieve there is a vast reservoir of untapped energy, capacity and wisdom within the people of our typical organizations. A key to unlocking this potential is a shift from the traditional paradigm of leaders lead and followers follow to a new paradigm³everyone a leader and everyone a follower. Many years ago, I toured a woodworking factory that was eventually acquired Ey American Woodmark. Its plant manager pointed out a worker stacking components coming from a saw. When the manager said the worker had done this same MoE for over ten years, I quickly formed an impression of his capaEilities. That impression was Must as quickly shattered when the manager continued Ey saying that this worker went home after work each day to run a family farm. The traditional paradigm is that “who leads” and “who follows” is determined Ey position, status or rank. The word leader, however, has as its origin in a Middle English word meaning literally “the one who walks ahead.” With this meaning, who leads and who follows is determined not Ey position or rank, Eut rather Ey behavior. If we deÀne a leader as “one who acts to inÁuence people to follow a particular direction,” then whenever we Eehave in this way, we Eecome leaders. If one “walks ahead,” it is implied that there is at least one other who follows. A follower is “one who is inÁuenced Ey another to pursue a particular direction.” Whenever we do 73

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so, we Eecome followers, regardless of any formal authority we may hold over the person inÁuencing us. Adopting these deÀnitions leads us to a new paradigm, everyone a leader and everyone a follower. Some years after my experience in the woodworking factory, a union negotiation at the same facility resulted in workers gaining responsiEility for a numEer of decisions previously made Ey management. More recently, this organization adopted “lean manufacturing,” in which shop-Áoor workers took a leadership role in determining how to restructure work and improve quality, productivity and safety. These steps helped the organization to transition to this everyone-a-leader, everyone-a-follower perspective. 2rganizations can fully adopt this new paradigm Ey estaElishing an orientation that all memEers approach every situation from the viewpoint that they may lead or follow depending upon the circumstances that unfold. With this orientation, leaders hold themselves responsiEle and accountaEle for acting according to the organization·s purpose and values. Even though they may have formal power over others, they see themselves as having a choice as to whether and how to share this power. For example, whenever we defer to a technical expert, we are choosing to follow this other person·s lead. Followers also see themselves as having choices³whether ot not to follow and in what manner. They are prepared to challenge, question and offer suggestions. They do so without undermining the formal authority of their leaders to lead or relieving themselves of their duty to follow. While they respect the authority of their leaders, they do not Elindly fall in step. Rather, they, too, hold themselves accountaEle to the higher authority of the organization·s and their own ethical values. The everyone-a-leader and everyone-a-follower orientation has several profound EeneÀts. People don·t inherently

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see others in one-down or one-up positions, and so they are more likely to treat each other with greater dignity and respect. Neither leaders nor followers automatically assume that it is the leader who is “right” or has the “truth.” Therefore, Eoth parties will more readily see reality as it is rather than assume that the leader already has the right perspective. Furthermore, followers are more likely to grow, develop their capaEilities and Eecome more autonomous. Finally, people will come to work with a sense of ownership of Eoth their individual responsiEilities and the organization as a whole. They will Ee energized, ready to use their talents and willing to share their wisdom. As a result, organizations increase their capacities to Ee creative, make Eetter decisions, accomplish challenging goals, estaElish competitive advantages and ultimately Eehave in a more positive way in keeping with their purposes and values. Creating the organizational Eelief that everyone is a leader and everyone is a follower is a challenging Eut highly rewarding endeavor. An organization successful in doing so unlocks the vast hidden potential of its memEers. The impact of this potential, once released, is tremendous. QUESTIONS FOR REFLECTION

z When you think of the word “leader,” what characteristics Àrst come to mind: “position,” “rank,” “type of Eehavior” or something else? What aEout the word “follower?” z Have you ever Eeen in a formal leadership role where you have acted as a follower as deÀned here? Similarly, have you Eeen in a follower role and yet acted as a leader? If so, what were the results?

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RELATED CHAPTERS

z Essay:

Yes, Even in Business: 52

z Lesson:

Leaders and Followers: 158

Section 2.3

PROCESSES AND TOOLS This section includes six essays that descriEe principles and techniques that will aid in the creation and maintenance of exceptional organizations. First, “What Do I Want?” presents a universal process for doing work which is applicaEle to any situation. Second, “The Much Maligned Meeting” provides a Easic format for conducting effective and efÀcient meetings. Third, “The Survival of the Fittest” shows that effective leaders emErace Eoth competition and cooperation as appropriate techniques depending upon the particular circumstances. Fourth, “ ¶Not Knowing· is Your Friend” descriEes methods of discourse to Eetter seek the truth of any situation. Fifth, “Yes, Even for Non-ProÀts” shows the importance of creating a signiÀcant and sustainaEle cash Áow for all enterprises. Finally, “Maximizing ProÀts³Isn·t that 2ur -oE?” questions the traditional criteria for decision-making and offers an alternative.

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“WHAT DO I WANT?” I Eelieve in the creative orientation, where individuals and organizations seek to create the results they truly desire. This perspective contrasts with the more common perspective where people and organizations respond or react to the events they experience. We do not inherently have one orientation or the other. Rather, we have the potential to shift our perspective toward the creative and thereEy Ee more likely to achieve our aspirations. As a handout from a seminar on organizational learning, I received a copy of RoEert Fritz·s, The Path of Least Resistance. Fritz, a composer Ey training, asked how professionals in the arts and sciences created their results. He found that they followed a common creative process that led to their professional success. It did not occur to these creators, however, to apply these same principles to other aspects of their lives. Fritz·s insight was to make this process conscious so that anyone could learn to create what they wanted in their lives, Eoth personally and professionally. Fritz states that as children we learned that circumstances were the predominant forces in our lives. We experienced approval Ey parents, teachers and other adults for proper responses and disapproval for negative ones. If we were successfully rewarded for our responses, we may have developed a responsive orientation, where we adapted well and Eecame good students, employees and citizens in general. If our responses were not rewarded, we may have learned a reactive 78

“What Do I Want?”

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orientation and Eecome cynical, suspicious and reEellious. In either orientation, the driving forces lie in our circumstances. In this view, the forces shaping our lives are external to us. They are out of our control, and as luck would have it, we are powerless to change them. The creative orientation is quite different. Whereas people in the responsive-reactive orientation organize their lives around the circumstances in them, people in the creative orientation organize them according to what they want to create. The focus of the creative orientation lies in the fundamental question, “What do I want?” or “What are the results I desire to create?” These questions can Ee asked in any situation without regard to the circumstances that exist. People in this orientation choose to pursue what they want and act to Ering their creations into Eeing. With this orientation, power is not external to their circumstances, Eut rather internal within them. 2r as George Bernard Shaw said, “You see things as they are and say, ¶Why?· But I dream things that never were and say, ¶Why not?·” After reading his Eook, I modiÀed Fritz·s description of the creative process into a format that I thought applicaEle not only to individuals Eut also to organizations. I called this format, The 7-Step Process: THE 7-STEP PROCESS

1. Create a vision 2. Understand current reality 3. Take action 4. Measure performance 5. Modify action 6. Achieve results 7. Create a new vision

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Fundamental to this process is what Fritz calls structural tension, which results from the discrepancy Eetween what we want step 1 and what we have step 2 . 2nce the tension Eetween our vision and current reality is estaElished, movement follows the path of least resistance. We take action step 3 to shift reality toward the desired result. We measure our performance step 4 and modify our actions as necessary step 5 until we achieve our desired result step 6 . 2nce we have achieved this result, we create a new vision step 7 . In The Path of Least Resistance for Managers, Fritz differentiated organizations that have oscillating structures, where temporary successes are followed Ey repeated setEacks, from those having advancing structures, which experience continuing growth and success over time. In structures that oscillate, leaders react or respond to events, whereas in those that advance, they create structural tension³in this case, Eetween the desired state for the organization and its existing state. In 1989, American Woodmark created a “1995 Vision” to restructure its strategic direction and to change its culture in support of this new direction. During its transition, the company introduced the 7-Step Process, which eventually Eecame the primary management tool used to run the Eusiness. We applied it to situations, large and small, wherever we could ask the question, “What do we want?” After several setEacks, we accomplished our 1995 Vision. With its successful resolution, we initiated and suEstantially achieved successive six-year visions in 2001, 2007 and 2013. The company is now initiating its 2019 Vision. 2ver time, American Woodmark has Eeen successful in creating an advancing structure. By adapting a creative orientation and applying the creative process, organizations are more likely to estaElish Eold visions, Eetter understand reality and work in alignment to achieve goals. As a result, these organizations advance and

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achieve their desired results. Similarly, their memEers, rather than respond or react to circumstances, create what they truly desire, Eoth in their professional and personal lives. QUESTIONS FOR REFLECTION

z Have you ever responded or reacted to events? What would Ee an example? z Have you ever created what you wanted to create? What would Ee an example? z Do you see yourself as having a more dominant tendency toward the responsive-reactive orientation or to that of the creative? RELATED CHAPTERS

z Essay:

“Any Luck?”: 121

z Lessons: The 7-Step Process: 183 Working in Alignment: 244

11

THE MUCH MALIGNED MEETING I Eelieve that meetings get a Eum rap! The frequent wrath of meeting goers is largely misguided. The reality is that meetings are vital to organizational success³perhaps that·s why we conduct so many of them. Whatever frustrations we feel aEout meetings are Eetter focused upon our lack of skills in conducting them. Fortunately, these skills are readily learnaEle. When applied, they suEstantially multiply our personal and organizational effectiveness. Most leaders have little or no awareness of how to properly conduct a meeting or the consequences of not doing so. Participants are often left wondering, “Why am I here?” “What are we trying to accomplish?” “Why is one person dominating the conversation?” “Why can·t we reach a conclusion?” “How could I Eetter use my time if I were not here?” Emotions range from indifference and Eoredom to anger, cynicism and regret. For many years, American Woodmark had no estaElished technique for conducting meetings. As a result, quality varied according to the skill of each meeting·s leader³none of whom had any formal training in the suEMect. 2ne year, we engaged a consultant who provided us with a meeting management process. He presented a sixty page manual of how to conduct meetings, which we dutifully followed in pilot programs. It was soon apparent, however, that this technique would not work. It was too complex, and it conÁicted with 82

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some of our estaElished management principles. Before long, we dismissed him and his process. After this experience, we concluded that we needed to take a more Easic approach and create a methodology that would Ee applicaEle to virtually any meeting situation. We estaElished the following format: STANDARD MEETING FORMAT

z IceEreaker z Review agenda z Set expectations z Content z Next step z Review expectations z FeedEack While each step was critical, three were unusual to traditional meeting management tools: set expectations, review expectations and feedback. By asking attendees to state their expectations, the participants created a shared vision for what constituted a successful meeting. Expectations that could not Ee met were noted at the start thus reducing the disappointment of not Eeing addressed later on. Second, Ey reviewing expectations at the end of the meeting, there was a recognition as to whether or not the participants· expectations were successfully met. Third, Ey asking leaders and participants to provide feedEack³not only on meeting content Eut also on the way the meeting was conducted³they Eecame oEservers of their own Eehavior and over time increased their meeting-management skills. Finally, as par-

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ticipants Eecame more comfortaEle Eeing open in their feedEack, they typically developed much greater trust with one another. We trained people in this technique across the company, estaElishing the rule that all meetings would utilize this format. Collective skill levels increased, and our culture reinforced expectations that the format would Ee followed. The implementation was relatively painless. People quickly saw that their meetings had a purpose, achieved an appropriate result and did so in a efÀcient manner. Their effectiveness further supported their continued use. This tool has stood the test of time and has since Eeen adopted successfully in other organizations. For those institutions suffering from mindless meetings, using the standard meeting format will likely create quick and suEstantial EeneÀts for a relatively limited investment. For this reason, it can serve as one of the Àrst steps of a Eroader cultural-change effort. QUESTIONS FOR REFLECTION

z Think of an ineffective meeting that you attended. What made it ineffective? z Think of a successful meeting in which you participated. What made it effective? RELATED CHAPTER

z Lesson:

Meeting Management: 196

12

THE SURVIVAL OF THE FITTEST I Eelieve in “the survival of the Àttest”³not Must for life·s creatures Eut also for economic institutions. But what makes such institutions Àt? The traditional view is that they know Eest how to compete—how to win Ey pursuing their own selfinterests. I Eelieve, however, that the secret lies not only in understanding how to compete Eut also in how to cooperate³ where parties mutually EeneÀt Ey sharing a concern for one another. The challenge is in knowing when to use one approach over the other. The case for the traditional view was dramatized Ey Gordon Gekko in the 1987 Àlm, Wall Street. At a shareholders· meeting of Teldar Paper, Gekko, played Ey Michael Douglas, makes an impassioned plea to convince Teldar shareholders to sell him their company. The new law of evolution in Corporate America seems to be survival of the un-Àttest. But, in my book you either do it right or you get eliminated. The point is, ladies and gentlemen, that greed, for a lack of a better word, greed is good. Greed is good, greed is right, greed works, greed clariÀes, cuts through and captures the essence of the evolutionary spirit. Greed in all its forms—greed for life, for money, for love, for knowledge has marked the upward surge of mankind, and greed, you mark my words, will not only save Teldar Paper but that other malfunctioning corporation called the U.S.A.1 85

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Gekko·s philosophy is supported Ey two of the most inÁuential authors of all time. In the Wealth of Nations, puElished in 1776, Adam Smith argued that individuals pursuing their own self-interests will not only provide themselves the maximum EeneÀt, Eut will also create³through “the invisiEle hand of the marketplace”³the greatest EeneÀt to the overall community. This concept was reinforced in 1859 Ey Charles Darwin, who in The Origin of Species, stated that species are naturally selected to survive Eased upon their Àtness in life·s competition. The phrase “survival of the Àttest,” although not coined Ey Darwin, came to symEolize his work. The proElem with the traditional view is that it is applied not only to economic institutions that naturally compete for revenues and scarce resources, Eut to all parties in all situations. The goal is to win³even with employees, suppliers, customers and other stakeholders of the institutions. The assumption is that all parties are in conÁict with each pursuing their own respective self-interests. When I started working for Boise Cascade·s caEinet division, the owner of the predecessor company to American Woodmark was my Eoss. He was a Eully. Sitting in his ofÀce one day, I witnessed him Eecome incensed when our sales manager came in to express his difÀculty in getting a key customer to accept the phase out of a product line critical to that customer·s Eusiness. At that moment, he picked up the phone, got the customer on the line and said in an angry voice, “Sam, this is Al. We are phasing out the Windsor line.” Without waiting for a reply, he slammed down the phone, turned to our sales manager and said, “There, it·s done.” Because he had many talents, the Eusiness was Ànancially successful, Eut for only as long as he could directly control it. He sold the Eusiness to Boise for a suEstantial sum, Eut continued to run it. As the Eusiness grew, however, he lost

The Survival of the Fittest

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his aEility to maintain control. He eventually left Boise, leaving the Eusiness in a chaotic state. Clearly, this organization was not “Àt for survival.” Most people are unaware that Adam Smith wrote a second Eook, the Theory of Moral Sentiments, which opens with the following sentence: How selÀsh soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.2 Smith stated that part of Eeing a moral person was having a concern for others, as well as for oneself. As descriEed in David Loye·s Eook, Darwin’s Lost Theory, Charles Darwin also wrote a second Eook, The Descent of Man, in which Darwin postulated that a key part of humankind·s successful evolution was our aEility to cooperate with one another. Based upon their writings, neither Smith nor Darwin would endorse a philosophy of “greed is good.” As part of a cultural-change initiative at American Woodmark, we strove to interact with all stakeholders on the Easis of cooperation Àrst and conÁict second. This approach was initially disorienting to union representatives, with whom we had historically acted as hard-nosed adversaries, and to our suppliers and customers, whom we had treated on a win/lose Easis³negotiating a price paid for the services rendered. We engaged the union to give workers greater responsiEility on the shop Áoor for decisions previously made Ey management. We also initiated formal partnership programs with vendors and customers to Eetter understand the details of each others· Eusinesses to Ànd opportunities for mutual gain. While the elements of competing self-interests were still very much present³particularly with product pricing with customers

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and vendors, and wage-scale negotiations with the union³ they Eecame of lesser importance to overall relationships. It would Ee nawve to assume that some level of cooperation is always possiEle. In People of the Lie, Scott Peck indicated that some individuals are so self-focused, and in some cases genuinely evil, that the only way to relate to them is on the Easis of power. For example, at American Woodmark, we once were ending a relationship with a maMor customer who owed us a consideraEle sum and whom we feared would stop paying us once his phase-out needs were met. We refused to send him any more product until his account was paid in full, and we made suEsequent shipments on a cash-Eeforedelivery Easis. While competition and self-interest are necessary for survival, to Ee sustainaEle an enterprise also needs to emErace the principles of cooperation, concern for others and partnership³knowing when to use one orientation over the other. It is important to rememEer that Ey the end of the movie Gordon Gekko·s world had collapsed. QUESTIONS FOR REFLECTION

z Do you see your organization·s relationships with various stakeholders³clients, suppliers, employees, shareholders and the communities in which you operate³Eased more upon competition or cooperation? z Under what circumstances does your organization EeneÀt from a competitive orientation? When is a cooperative orientation more advantageous? RELATED CHAPTERS

z Essay:

Yes, Even in Business: 52

z Lesson:

Culture: 150

13

“NOT KNOWING IS YOUR FRIEND” I Eelieve that debate³where the focus is upon winning an argument rather than seeking the truth³is overused and overvalued within organizations and society in general. 2n the contrary, other forms of discourse³when used to understand the truth and seek a Eetter result³are mostly misunderstood and largely neglected. In 1991, I attentively watched the television coverage of the Senate -udiciary Committee conÀrmation hearings on the nomination of Clarence Thomas to the Supreme Court. 2f particular interest was the testimony of Anita Hill, who had worked for Thomas. When asked in an FBI Eackground interview, she descriEed Thomas· Eehaviors, which, if true, could Ee construed as sexual harassment. In my nawvetp³it was the Àrst time that I had actually watched a congressional hearing³I had assumed that all memEers of the Committee, Eoth RepuElicans and Democrats, would want to learn the truth³ whether or not Thomas had in fact Eehaved this way. Actually, none of the Committee memEers gave this impression. When Hill testiÀed, most memEers spent the maMority of their allotted time speaking to the cameras rather than asking her questions. When they spoke, those favoring the nomination framed their comments and questions in a manner that disparaged Hill, while those against the nomination framed theirs in her support. There were other women availaEle who might have shed greater light on this matter, Eut they were never allowed 89

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to testify. The Senate narrowly conÀrmed Thomas· nomination, and I lost one pair of my rose-colored glasses. In retrospect, the Clarence Thomas hearings simply mirrored how people in America typically relate to one another. Most people value having their positions afÀrmed³regardless of their validity³over Ànding the truth of the matter. This preference is reinforced Ey our legal system, where the prosecution and the defense each argue the case from their respective sides. They are not expected to seek the truth, Eut rather to win the case. While this may Ee the Eest way to run a legal system, an over emphasis on asserting one·s position or winning a deEate can Ee devastating for organizations. Shortly after the Clarence Thomas hearings, I read Peter M. Senge·s, already cited, The Fifth Discipline. It not only put my frustrations with the hearings into perspective, Eut also provided a framework for understanding two types of discourse³discussion and dialogue. The purpose of discussion is to “present and defend different views.” Participants advocate their positions, evaluate alternative thoughts and reduce these alternatives until a common position is estaElished. Discussion falls into two categories. The Àrst is “deEate,” where the intent is to win one·s position rather than to seek the truth. The parties often view opinions as facts and Eelieve that their opinions are “the truth.” Since they “know the truth,” they neither seek input nor consider evidence to the contrary. The second category of discussion is “truth seeking” where the intent is to Ànd the truth, Eest conclusion or course of action. Here participants hold their opinions or mental models³that is, their internal pictures of the world³up to scrutiny to Eetter understand reality and make Eetter choices. They consider their initial positions as opinions to Ee questioned, not facts to Ee asserted. Since they don·t know the truth, they seek it.

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The purpose of dialogue is to “present different perspectives as a means to discovering a new perspective not anticipated Ey any one party.” Where discussion incorporates elements of advocacy and competition³that is, one idea in opposition to another³dialogue encompasses cooperation, group learning and idea creation. Dialogue is particularly useful when the suEMect matter is complex. By its very nature, dialogue is an attempt to seek the truth. 2rganizations spend the vast maMority of their time interacting in deEate rather than truth-seeking discussion or dialogue. Think of organizations that have either suffered mightily or failed altogether Eecause they held mental models of their environment signiÀcantly at variance with reality. An example is the internet industry in the late 1990s. Internet start-up companies assumed that a new economic reality would support ever increasing stock prices and that they could continually sell shares to the puElic. When this Eelief proved false and the market crashed, most of these start-ups went Eankrupt. While there are tools to Eetter learn how to effectively use discussion and dialogue, the fundamental choice is one of intent. Do you “know the truth,” or do you seek it? Is winning more important than knowing, or knowing more important than winning? While deEate may Ee appropriate in some instances, a Easic orientation of “seeking the truth”³ not knowing it³is a critical advantage for organizations and their memEers. “Not knowing” is your friend. QUESTIONS FOR REFLECTION

z Think of a time when you were part of a group seeking to make a decision. In what type of discourse did the other participants engage? In what type did you engage?

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z Recall an instance where you tried to “win an argument.” How open were you to learning new information, changing your opinions and siding with the other party? RELATED CHAPTER

z Lesson:

Mental Models: 210

14

YES, EVEN FOR NON-PROFITS I Eelieve in proÀts³yes, even for non-proÀts. The reality is that to Ee sustainaEle, all organizations must generate revenues equal to or greater than what they spend. The mechanism that creates this relationship is the business strategy— an integral element of the vision-driven organization. A Eusiness strategy, also referred to as a business model, is the vehicle Ey which organizations generate proÀts³or, as some non-proÀts prefer to say, “excess revenues over expenses.” By so doing, for-proÀt organizations create wealth for owners, while non-proÀts generate cash reserves³the equivalent of wealth³to Ee held Ey them for the puElic good. A viaEle Eusiness strategy creates a sustainaEle competitive advantage, meaning that customers, clients and Eenefactors value their products, services or causes more than they do the offerings of competing organizations. Such strategies are critical if institutions are to achieve their missions. I Àrst met Dr. -ames Davis, former President of Shenandoah University, in 1984 when he came to my ofÀce and asked me to get involved with the institution. Not long after, I Moined its Board of Trustees. Davis came to Shenandoah in 1982 in a time of crisis. The institution had low enrollments, high-Àxed costs, excess capacity, few cash reserves, virtually no endowment and a small alumni Ease. To survive, salaries were frozen, staff was cut and extraordinary efforts were made to meet payrolls. At the time, Shenandoah did not have a viaEle Eusiness strategy, Eut dearly needed one. 93

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Under Davis· leadership, a new direction evolved. Since the potential for further expense reductions was limited, the only opportunity was a strategy for greater revenue growth. Shenandoah created a two-pronged Eusiness model, which³ in addition to addressing the school·s immediate needs³ served the institution well for the next twenty years. The Àrst was a focus on gaining Ànancial support from memEers of its local communities. Critical to this was the creation among donors of a sense of ownership in the success of the institution, even though most were not alumni. The second was the development of new academic programs which were not only self-funding through tuitions and fees Eut also generated contriEutions to overhead EeneÀting the institution overall. The focus of this initiative was the creation of highly sought graduate programs which were in demand nationally. These had the advantage of not requiring the signiÀcant Ànancial-aid support required of undergraduate programs. 2ver Davis· twenty-six year tenure, Shenandoah increased the quality of instruction, estaElished graduate programs in eight key areas, expanded enrollment from 900 to 3000 and Eecame a regional university with several nationally recognized programs. While not the only factor, none of this would have Eeen possiEle without a viaEle Eusiness strategy. Under the leadership of Dr. Tracy Fitzsimmons, who succeeded Davis as Shenandoah·s president in 2008, the institution continues to prosper and grow³with a new strategy Euilt upon the successes of the past. Many institutions develop Àve-year or ten-year plans that are little more than extrapolations of past trends into the future. Annual Eudgeting Eecomes an exercise where those at lower levels vie for a greater percentage of the organization·s resources, and senior management decides how Eest to split the pie. Frequently, leaders of successful enterprises are not even aware of their entities· underlying Eusiness strategies. 2ften such leaders took the helm when times

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were good and implicitly assumed that they would remain so. It usually takes a crisis for such individuals to examine their Eusiness strategies³and often too late. With the most recent economic downturn, many leaders found that what had worked for decades had Eecome oEsolete. Early in my career, I had the fortune of leading American Woodmark·s predecessor company through an economic downturn. I have suEsequently led American Woodmark through two others. Each instance made us acutely aware of the strengths and weaknesses of our Eusiness model and afforded us the freedom to make difÀcult choices that might not have Eeen availaEle in Eetter times. In each situation, our vision was not only to survive the downturn Eut also to enhance our competitive posture as we exited it. None of these initiatives were made as part of the normal Eudgeting and Eusiness planning cycle. For either a for-proÀt or non-proÀt institution, there is no alternative Eut to create a viaEle Eusiness strategy where the organization sustains a competitive advantage and a positive cash Áow. While not the only factor, viaEle Eusiness strategies are crucial to the creation of exceptional organizations. QUESTIONS FOR REFLECTION

z Can you articulate the Eusiness strategy for any forproÀt or non-proÀt organization for which you are or were a memEer? z Have you Eeen a memEer of an organization that went through a severe change in its environment? If so, did its Eusiness strategy change? How did this come aEout? RELATED CHAPTER

z Lesson:

Vision-Driven 2rganizations: 130

15

“MAXIMIZING PROFITS— ISN’T THAT OUR JOB?” The common Eelief is that the goal of for-proÀt Eusiness organizations is to maximize proÀts and Ey implication shareholder value. What seems to have gone unnoticed is the fact that it is actually impossiEle to make decisions using this standard as a criterion. Also unnoticed is the perverse consequences of attempting to do so. Could the conventional wisdom Ee wrong? At some point in history, an economist came up with the proposition that people are “rational,” and that Ey Eeing rational, Eusiness leaders will make decisions Eased upon maximizing proÀts in any particular situation. 2ver the years, this view has Eecome ingrained as a fundamental principle of most economic theory and is now immortalized in virtually every introductory economics textEook. ProÀt maximization Eecame thought of as a EeneÀt to society, as evidenced Ey the American Law Institute’s Principles of Corporate Governance which states: … a corporation … should have as its objective the conduct of business activities with a view to enhance proÀts and shareholder gain.1 So the enhancement of shareholder value is not only a good thing, it is a legal principle. Citigroup·s Eusiness leaders have given every appearance of attempting to maximize proÀts. 2ver the years, Citigroup 96

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grew to Eecome a huge diversiÀed Ànancial services giant revered Ey the Eusiness press. In the late 1990s, it successfully championed the loEEying efforts that resulted in Congress reducing regulatory restraints on Eanks. Unfortunately, there is a slight Elemish on its otherwise stellar record. In the most recent economic crisis, Citigroup was so overexposed to the mortgage market that to survive it required a massive Eailout from the Federal Reserve which gave the United States 36 percent of its equity and control of its destiny. Citigroup·s experience exposes some of the fallacies of the proÀt-maximization principle. Since proÀt maximization implies that all Eehaviors should Ee focused on this result to the exclusion of others, it follows that the enterprise should Ee willing to accept whatever risk is required to achieve this outcome. In Citigroup·s case, this orientation led to an overexposure to potentially proÀtaEle, yet in retrospect, highly risky loans and investments. It also implies that Citigroup·s stakeholders other than shareholders don·t matter³its depositors, Eondholders, employees and the world Ànancial system. What proÀt maximization does imply is the maximization of shareholder value. But who are the shareholders? For puElic corporations, are they³individuals who have owned the company·s stock since its inception, traders who may own the stock for less than a day, or potential investors Eeing courted to Euy stock for the future? Second, what is the time frame over which proÀts are maximized,³a day, a month, a quarter, a year or longer? Finally, what is the measurement of proÀts³after-tax earnings, earnings per share, return on invested capital, the net present value of discounted cash Áows or an increase in share price? Since there is consideraEle amEiguity as to what we mean Ey proÀt maximization, it is impossiEle to have one criterion upon which to make choices.

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The reality is that no organization actually does make decisions Eased solely upon proÀt maximization. The level of risk is questioned, other stakeholders are considered and a range of criteria are addressed to meet various stakeholder interests. However, a strong Eias toward the perceived principle of proÀt maximization may lead Eoards of directors to seeing their role as primarily representing shareholders. As a result, they tend to create incentive systems for managers Eased almost exclusively upon Ànancial performance, frequently rewarding greater levels of risk-taking and shorter rather than a longer time frames. ProEaEly the greatest fallacy of a proÀt-maximization Eelief is that it keeps Eusiness leaders from focusing upon what is really important. Business organizations are conceived Ey their founders to achieve purposes that typically go far Eeyond simply making a proÀt. Where this is the case, shareholders are enlisted as a means to achieve these purposes, realizing that these shareholders expect a return on their investments for doing so. In a similar manner, other stakeholders are enlisted³ employees, customers, suppliers, communities, even society in general³all of which expect value for their contriEutions.2 I Eelieve that leaders should make decisions Eased upon the best interests of the enterprise as a whole, which includes pursuing its mission, maintaining its long-term viaEility and providing value to all stakeholders. Acting this way does not require that the needs of every stakeholder Ee well met all of the time. This would Ee impossiEle to do. 2n the contrary, depending upon the circumstances, some stakeholder needs must Ee suEordinated to others. For example, in a severe economic downturn dividends may Ee cut to conserve cash to fund customer promotions. These actions, while serving the organization as a whole, would in the short run EeneÀt customers to the detriment of shareholders. Alternatively, temporary pay cuts would EeneÀt shareholders at the expense

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of employees. There is no formula for determining what is in the Eest interests of the organization. Leaders must weigh all of the variaEles and use their Eest Mudgment to reach their decisions. ProÀts for shareholders, Must like the returns to all stakeholders, are a residual result of running the enterprise effectively and efÀciently. The irony is that Ey acting in the Eest interests of the organization overall, the enterprise is more likely to thrive, with all stakeholders EeneÀting in a superior way over time. Like all puElic companies, American Woodmark·s share price is advantaged if its reported earnings per share are slightly aEove its prior year·s earning·s level rather than slightly Eelow. Kent Guichard, when he was our chief Ànancial ofÀcer, closed our Eooks one quarter and later told me that we had earned one cent less than the prior year. I recall saying that it was a shame that we did not earn Must two cents more so that we could report a slight gain. He told me that there was enough discretion in the various accrual and reserve accounts to have done so, Eut that our results were Eased upon previously agreed to estimates of these account valuations made Ey his staff. He thought it important that our Ànance team know that it was their MoE to prepare an accurate presentation of our Ànancial results, not to arEitrarily change reserve levels after the fact in order to make our earnings appear Eetter. While Kent·s Eehavior did not “maximize” proÀts or shareholder value in the moment, it did send a message to his team, to the organization as a whole and even to the investment community that actions to artiÀcially improve results in the short term at the expense of the long term were unacceptaEle, not consistent with the company·s values and not in the Eest long-term interest of the organization. It is not the MoE of Eusiness leaders to maximize shareholder value, nor to maximize the value received Ey any

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other stakeholder. All parties are responsiEle for acting in their own Eest interests. In the case of puElic corporations, shareholders can Euy shares, sell shares already owned, or vote to add or replace directors. These potential actions can Ee evaluated relative to other alternatives in the pursuit of their desired investment returns. The American Law Institute’s Principles of Corporate Governance also states that in the event of an unsolicited tender offer to acquire a company that there are: … circumstances in which the board may give weight to groups or interests separate from the shareholders that may be negatively affected by a tender offer that could be said to favor the interests of shareholders. … Such groups and interests would include, for example, environmental or other community concerns, and may include groups such as employees, suppliers and customers.3 Even our legal system has concluded that it is okay for Eusiness leaders to consider stakeholders other than shareholders alone in its deliEerations. By acting in the organization·s Eest interests rather than attempting to maximize proÀts, the enterprise is much more likely to create extraordinary shareholder value over the long term. Not only will the enterprise thrive, Eut so will all of its stakeholders. QUESTIONS FOR REFLECTION

z For organizations where you have worked, what did its leaders see as their primary responsiEility? What criteria were used to measure performance relative to this criterion? How did these measures inÁuence decisions?

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z Have you Eeen in a situation where acting in accordance with estaElished performance targets was inconsistent with what you thought would Ee in the Eest interests of the enterprise? How did you resolve this dilemma? RELATED CHAPTER

z Essay:

Yes, Even in Business: 52

Section 2.4

THE JOURNEY This section presents six essays that descriEe the nature of Mourneys taken to create exceptional organizations. It highlights the commitment, the willingness to Ee wrong, the ÁexiEility to change and the perseverance required of leaders who undertake such ventures. First, “Talk is Cheap” showcases the difference Eetween adopting a statement of values on paper and acting according to them in reality. Second, “Guidance from Gandhi” offers insights into overcoming Earriers to cultural change. Third, “A Bad Plan Poorly Executed” shows how easy it is to get off-track Ey following what is considered “Eest practices”³in this instance, the delegation of decision-making authority when working in teams. Fourth, “Right Person / Right -oE” acknowledges the universal desire to Àll every position with a highly effective individual with the challenge of Euilding a structure to do so. Fifth, “Why Do Exceptional 2rganizations Fail?” shows that once estaElished, exceptional organizations must Ee vigilant to maintain their status. Finally, “Any Luck?” makes the somewhat contradictory point that while we cannot control events, we can choose to make a difference in our own lives and the lives of others.

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TALK IS CHEAP Talk is cheap! While virtually all organizations of any size emErace statements of values to guide ethical Eehavior, few actually live up to them. Unfortunately, creating an organization whose values are emEraced in reality, rather than Must on paper, is a daunting task. In -uly 2000, a multi-Eillion dollar corporation issued a sixty-four page Code of Ethics, which included, along with its vision to Ee the world leader in its industry, the following values· statement:

OUR VALUES RESPECT: We treat others as we would like to Ee treated ourselves. We do not tolerate aEusive or disrespectful treatment. Ruthlessness, callousness and arrogance do not Eelong here. INTEGRITY: We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won·t do it. C2MMUNICATI2N: We have an oEligation to communicate. Here we take the time to talk with one another«and to listen. We Eelieve that information is meant to move and that information moves people. E;CELLENCE: We are satisÀed with nothing less than the very Eest in everything we do. We will con103

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tinue to raise the Ear for everyone. The great fun here will Ee for all of us to discover Must how good we really can Ee.1 In DecemEer 2001, this same enterprise Àled for Eankruptcy, and shortly thereafter its chairman, president and other senior ofÀcers were convicted of fraud and other crimes. The Smithsonian Institution secured a copy of the corporation·s Code of Ethics for its archives. This company was Enron. Some organizations· leaders have no interest in living up to their stated values. Their goal is to deceive stakeholders into Eelieving that they are more virtuous than they truly are. 2thers, however, genuinely want their organizations to act according to espoused values, Eut for whatever reason, are unaEle to do so. Some years ago, American Woodmark created a mission statement to descriEe the company·s purpose, values and expected Eehaviors. 2ur values were organized around four guiding principles: customer satisfaction, integrity, teamwork and excellence. The initial response from employees after its introduction was overwhelmingly positive, and we waited in anticipation for Eehaviors to change. The Àrst tangiEle reaction, however, was one of confusion and frustration. The reality was that our company provided good Eut not great customer satisfaction, acted with integrity some Eut not all of the time, did not work in teams and was far from excellent. Employees attempting to act according to the guidelines were soon confronted Ey difÀcult-to-resolve Earriers preventing them from doing so. For example, when we manufactured a product with less than desired quality, our quality-control personnel Eegan holding up shipments. However, our machinery was incapaEle of consistently producing a product up to standard, and we were therefore confronted with the choice of shipping suEstandard prod-

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uct or nothing at all. We shipped the suEstandard product, and our employees soon learned to ignore the mission statement. Their Eehaviors reverted Eack to where they had Eeen Eefore. It was not until three years later when as part of a Eroader initiative, our 1995 Vision, we made a committed effort to live up to the principles of our mission statement. We created enhanced quality and service processes, estaElished procedures for working in teams, taught employees how to resolve ethical dilemmas and, in general, enhanced management effectiveness. It took six years for our Eehaviors to reach a minimum degree of alignment with our mission statement values. Merely telling people that they must Eehave differently Must doesn·t work. To make such changes require the creation of speciÀc processes and structures that enaEle the organization to act according to its desired standards. Depending upon the circumstances, creating value-Eased entities may take days, months or years. In the interim, it is important to present one·s value statement as an aspiration to Ee pursued rather than as a reality already achieved. Value-Eased organizations have long-term competitive advantages. If given the choice, most people would prefer working in such institutions, and clients, suppliers and other stakeholders would likewise prefer relationships with such enterprises over those more typically availaEle. Talk is cheap³Eut creating a value-Eased organization in reality, not Must on paper, is something to treasure. QUESTIONS FOR REFLECTION

z Have you Eeen a memEer of an organization that had a statement of values? How well did the organization and its memEers live up to them?

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z Have you Eeen in a situation where it seemed impossiEle for you to live up the organization·s stated values? How did you resolve this situation? RELATED CHAPTERS

z Essays:

Nice Guys Finish Last: 54 The Servant as Leader: 65

z Lessons: Values: 141 Cultural Change: 254

17

GUIDANCE FROM GANDHI 2rganizational cultures are naturally resistant to change. But what if we want to change them? While I Eelieve that we can do so successfully, the path is not oEvious. There are unanticipated twists and turns, and the terrain is covered with sticks and stones. We can deÀne the culture of an organization as the beliefs, values, traditions and processes that determine its Eehavior. A culture is a system Eecause its elements function together as a whole, and it is a stable system in that its Eehaviors tend to remain constant even when the outside environment changes. To create a new culture requires not only positive actions to move toward the desired state, Eut also steps to remove Earriers that keep the existing culture in place. As mentioned in the case study, American Woodmark introduced, as part of its 1995 Vision, a standardized management process for creating results. We asked the senior management team at all locations to learn to use these techniques and then to train those lower in their organizations to do the same. During a visit to one such location, I asked the senior team how they liked the new initiative. They said that they found it very EeneÀcial for lower-level management. I then asked aEout their own experience using the process, at which point the location manager responded, “2ur senior team doesn·t need the new tools, our existing techniques work Must Àne.” So much for emEracing change! 107

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As a result of this visit, our corporate leadership team suspended the rollout of the program to reassess how Eest to proceed. We concluded that we would start the training over again and would require proÀciency in the use of the process at each organizational level Eefore taking the training to the next lower level. We Eegan Ey reestaElishing our own use of these techniques. This approach eventually proved successful. However, what was thought to Ee a six-month implementation took three years for completion with further Àts and starts along the way. While initially everyone was excited aEout the new program·s potential³“to take us toward a desired state,” we had not anticipated the resistance to giving up estaElished haEits and work patterns³“the Earriers that keep existing Eehaviors in place.” Everyone Eelieves in change, provided it happens to someone else. Few of us are willing to change our own Eehavior, and the higher we are in the organization·s hierarchy the less willing we are to do so. After all, we arrived at our current positions precisely Eecause we already knew what to do. When as leaders we are tempted to create a new organizational culture, we must rememEer that our own Eehavior is part of the existing culture. So where do we Eegin? I Eelieve that we can take our guidance from Gandhi who said that if you want to change the world, you must start Ey changing yourself. This is not an easy task. We must not only overcome estaElished routines, Eut also the negative feedEack from the existing culture that will Àght to keep us in our place. As we persevere, we will Ànd that this culture will Eegin to shift in a positive direction in part Eecause we, as an element of the system, have shifted our own Eehavior. Cultural change is a difÀcult, chaotic undertaking. Furthermore, it requires that we move out of our personal comfort zones and emErace new Eehaviors. The decision to pur-

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sue such an initiative should not Ee taken lightly. However, when successful, it can Ee transformational for Eoth the individual and the organization. QUESTIONS FOR REFLECTION

z Have you ever Eeen part of a cultural-change effort? If so, what were the anticipated EeneÀts? Were there any Earriers to change? How did the initiative go? z Have you ever led a cultural-change effort either for an enterprise as a whole or for a team or department within it? If so, did you undergo any personal transformations yourself as part of the process? If so, how did this come aEout? RELATED CHAPTERS

z Lessons: Culture: 150 Cultural Change: 254

18

A BAD PLAN POORLY EXECUTED I once Eelieved in employee empowerment, deÀned as “individuals and teams acting with ownership, freedom and accountaEility while fulÀlling MoE responsiEilities.” I also Eelieved in making decisions Ey consensus, where teams “collectively come to an agreement that all team memEers can accept.” Why would I not Eelieve in them? They were highly touted Ey the leading management gurus of the day. As part of our 1995 Vision, we looked for an overall theme that would characterize American Wooodmark·s desire to have all employees Ee more responsiEle, take greater initiative, Ee more productive and emErace a sense of ownership in their MoEs. We came up with the theme, “Employee Empowerment³How We Run the Company.” With the help of a consultant, we developed various training tools to instruct employees on how they could put this principle into practice. We organized work into two categories; Àrst, that which could Ee done Ey natural-work teams comprised of people who work together on a daily Easis; and second, that which necessitated cross-functional teams, composed of people pulled together from different departments to accomplish a speciÀc task. The teams were instructed to make signiÀcant decisions Ey consensus. We launched these initiatives with much fanfare and great anticipation. While we had some initial success, we soon realized we had created a monster. The natural-work 110

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teams were empowered to create “Daily Improvement Plans”³whereEy they initiated actions to make improvements in their work areas. This effort was successful so long as the improvements were within their control. Unfortunately, most required assistance from others in the organization, who soon Eecame Áooded with requests for assistance. Before long, everyone Eecame disillusioned as requests were delayed or not Àlled. Furthermore, department managers of natural-work team memEers were confused aEout their authority. All teams reported to managers higher in the organization, Eut the managers were not ofÀcially included in the teams. Could they “tell” their teams to take a particular stand on a speciÀc issue? If they could, the team·s aEility to reach a consensus would Ee disempowered. If they could not, then their authority over their own direct reports would Ee compromised. In our effort to empower our people, we had undermined the traditional decision-making structure and leadership authority of the company. At the same time, cross-functional teams were commissioned to achieve tasks that cut across the organization. While many proposed solutions were satisfactory, others were frequently vetoed Ey those higher up in the hierarchy to the great consternation of those on the team who had assumed that their “consensus decisions” were a company commitment. Shortly after we emEarked on this team effort, our senior leadership team learned of the work of TannenEaum and Schmidt, who in 1958 wrote a Harvard Business Review article titled, “How to Choose a Leadership Pattern.” TannenEaum and Schmidt argued that there was no one ideal pattern for decision-making for a leader, Eut rather a range of possiEle styles depending upon the circumstances. At one extreme, the leader may appropriately choose a very directive style and announce a decision, “There is a Àre in the dust collection system! Turn off the power!” At the other

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extreme, the leader might give suEordinates the freedom to make their own choices within limits, “Your team can decide who works next week, as long as all functions are covered.” What is important is that leaders choose the right style for the right circumstance. When they do, suEordinates willingly support the leaders· decisions and experience a sense of ownership, responsiEility and accountaEility. We concluded that the work of TannenEaum and Schmidt made sense, and we adopted their approach. Upon reÁection, our focus on empowerment and consensus, was Eased upon a faulty assumption. We had Eelieved that giving people freedom of choice was inherently Eetter than Eeing directive. We assumed that our traditional leadership structure led naturally to more directive decisionmaking and that directive decision-making was inherently a Ead thing. Therefore, we concluded that we had to create new structures that would compensate for the ones already in place. With our new perspective, we reorganized our naturalwork teams according to the traditional management hierarchy. All supervisors Eecame team leaders, and their direct reports Eecame team memEers. As with a traditional management hierarchy, the team leaders retained full leadership responsiEility and authority. Cross-functional team leaders were given leadership authority within Eoundaries set Ey senior management. All supervisors were trained in the principles advocated Ey TannenEaum and Schmidt. Finally, we eliminated the guideline of making decisions Ey consensus. I Eelieve that people want to Ee part of a team led Ey leaders who use the right decision-making patterns for the circumstances. When this is the case, they will Ee responsiEle, accountaEle and have a sense of ownership in the desired result. The words “empowerment” and “consensus” are no longer in my vocaEulary.

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QUESTIONS FOR REFLECTION

z Were you ever part of a team responsiEle for making a proposed recommendation or for completing a speciÀc task? If so, how were decisions made? How effective was this process? z What is your decision-making style? Do you tend to have one pattern regardless of the circumstances or does your style vary? RELATED CHAPTERS

z Lessons: Leaders and Followers: 158 Leadership Styles for Decision Making: 174 Working in Teams: 236

19

RIGHT PERSON / RIGHT JOB Nearly everyone who has ever led an organization Eelieves in having the right person in the right job. The challenge, of course, is to create an environment where this result can actually take place. A numEer of years ago, -ake Gosa, who would later succeed me as CE2 of American Woodmark, and I went on one of many mini-retreats where we would periodically attempt to solve issues facing the company. 2n this particular occasion, we wrestled with how Eest to express our vision of the human resource requirements of the organization. In our deliEerations, we came up with the phrase “right person / right MoE.” It captured our thinking. We thought that if our leadership team at each level of the organization would use this simple phrase as a standard for organizing work and placing people in particular MoEs, we would create a superior human resource capacity aligned with the company·s needs. 4uite pleased with our creation, we returned from the retreat, got Euy-in from the rest of our senior leadership team and proceeded to introduce this concept. As we rolled it out, everyone appeared to accept the principle. 2ne day, however, I presented it to the leadership team of one of our manufacturing plants. That evening over dinner with the team, the plant manager expressed a concern, shared among his staff, that they saw themselves as “regular” or “average” people and that they did not know if they 114

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met the category of Eeing the “right persons” for their own MoEs. At that moment, I did not know either, nor could I reference any speciÀc criteria used Ey the company to answer this question. Although the company had at the time what I considered to Ee a standard performance evaluation process, it was a highly suEMective one Eased upon each supervisor·s prerogatives. With our “right person / right MoE” principle, we were attempting to raise our standards, Eut it soon Eecame clear that using these simple words did nothing Eut frustrate those who we expected to implement this change. After this interchange at dinner, I returned to the corporate ofÀce. 2ur senior leadership team soon agreed that we would remove the phrase “right person / right MoE” from the company·s lexicon. The reality is that, while the concept of an organization having the right people in the right MoEs is easy to emErace, creating an environment where this condition can actually exist is a different matter. It requires a numEer of interrelated human resource procedures. These include recruitment, performance evaluation, compensation, training and personal growth and development. I do not Eelieve the creation of these systems can Ee delegated to outside consultants or traditional staff departments, Eut rather must Ee conceived Ey the organization·s senior leadership team tasked with the overall responsiEility for running the organization. Since the time that -ake and I held our mini-retreat, it took another ten years for American Woodmark to create the necessary human resource structures to adequately support the “right person / right MoE” principle. In addition to the right human resource structures, exceptional organizations require senior leaders who not only have the requisite MoE skills Eut also the right values, the Àt with the organization·s culture and a sense of serving a cause greater than their own self-interests. Ideally these people are promoted from within. 2ver the last Àfteen years of my

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tenure, serving as either President or Chairman of American Woodmark, we promoted from within whenever feasiEle. For positions reporting either to the CE2 or the chief operating ofÀcer, we still needed to hire a numEer of people from outside the company. Although I thought we did a very thorough MoE vetting candidates³using a highly regarded search Àrm, numerous interviews, the feedEack of a very competent managerial psychologist and extensive reference checks, only 50 percent of the individuals proved effective in their new positions. Although I was frustrated Ey our success rate at the time, in retrospect, I Eelieve we had a pretty good Eatting average. Furthermore, of those that did make the cut, two eventually Eecame exceptional CE2s. Creating the human resource systems necessary to have the right person in the right MoE is an arduous, time-consuming task with a long payEack period. For these reasons, the effort will likely Ee preempted from time to time to address more immediate priorities. If created, however, this result will Eecome a maMor source of long-term competitive advantage. QUESTIONS FOR REFLECTION

z Have the organizations in which you were a memEer had the right people in the right MoEs? What criteria did you use to reach your conclusion? z Have you considered yourself the “right person in the right MoE” for organizations where you have worked? What criteria helped you reach this conclusion? RELATED CHAPTERS

z Essay:

The Servant as Leader: 65

z Lessons: Culture: 150 Leaders and Followers: 158

20

“WHY DO EXCEPTIONAL ORGANIZATIONS FAIL?” Since a primary characteristic of exceptional organizations is that they are not only viaEle and valued, Eut also sustainaEle, then it should follow that they continue indeÀnitely. Unfortunately, this is not the case. In reality, some do fail. The now conventional wisdom is that organizations fail Eecause of external disruptions³changing technology, unanticipated competitive thrusts, altered market dynamics or economic crises. In his insightful Eook, The Innovator’s Dilemma, Clayton Christensen explained how difÀcult it is for organizations that have successful product or service offerings to adopt the next generation of innovations that would at some point supplant what works Eest for them today. He concluded that success today Ereeds the seeds of destruction tomorrow. I Eelieve that Christensen·s oEservations are applicaEle to all organizations, whether exceptional or not. Exceptional organizations, however, are more likely to survive these disruptions. They typically have Ànancial reserves that give them time and resources to make adMustments. They have inspired competent people who are continually scanning the market and technological landscape ready to make adaptations and reinvent³or disrupt³themselves as required, and they have strong cultures that are a maMor source of competitive advantage. This does not mean that such entities don·t go through turEulent times, Eut rather they have the resiliency to get through them and usually emerge all the stron117

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ger. So, while disruptive technologies may Ee the demise of some exceptional organizations, I do not Eelieve they are the primary cause. As a child, I rememEer going with my mother to a corner poultry shop in the Italian section of downtown Hartford, Connecticut. The shop offered live chickens which were Eutchered to order on the spot. Eventually, this section of town was targeted for high-rise Euilding development, and all the area shops and restaurants were Eought up³all except one. The poultry shop·s owner, the Eutcher, refused to sell. For years, he fought the comEined will of the city, its health department, and the legal and Ànancial might of a multi-Eillion dollar insurance company which wanted his property to complete a city Elock for a new high rise. Eventually, it was the insurance company that caved, constructing its Euilding on the Elock, Eut circumventing the poultry shop, so that the Euilding looked like it had a chipped tooth. Although dwarfed Ey its surroundings, the poultry shop continued in Eusiness. It remained, viaEle, sustainaEle and valued³at least to its owner, now providing fresh chickens to ofÀce workers on their way home. Many years later on a visit to Hartford, I looked expectantly for the shop, Eut it was gone. A person I admired served as the CE2 of a puElic company that I considered to Ee exceptional Eased upon its topof-class industry rankings, superior Ànancial performance and inspired culture. But the company was controlled Ey a 49 percent owner that wanted to take the company in a new direction for reasons having more to do with its own unique situation than anything else. After an unsuccessful attempt to Euy the company, this person retired, several of his senior staff left the organization to Eecome leaders of other entities, and new leadership was Erought in from outside. In a small fraction of the time it took to create it, the company·s exceptional status was gone.

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The poultry shop remained in Eusiness for decades, reEufÀng every external threat. It presumaEly did not, however, survive the retirement or death of its owner. Similarly, the puElic company mentioned aEove stood at the head of its industry Eut could not withstand a shift in owner priorities and a consequent leadership change. It is at their peaks that exceptional enterprises are most vulneraEle. It is critical that in the transfer of leadership from one generation to another that new leaders Ee champions of their entities· aspirations, values and cultures. The ideal place to Ànd such servant leaders is from within the organization·s own ranks Eecause such individuals will most likely emErace their entity·s unique characteristics. This conclusion is supported Ey the research of -im Collins· previously mentioned Eook, Good to Great, who found that of the eleven companies in his study that had gone from good to great, ten had new CE2s who came from within. This was six times the rate of comparison companies, which had not achieved this status.1 We have had two CE2s at American Woodmark³-ake Gosa and Kent Guichard³since my retirement. Both were promoted from within and, prior to assuming their roles, had helped shape our organization·s culture. Both have Eeen extremely effective. Ultimately, it is the owners, or their proxies³their directors and trustees³who determine whether or not their organizations remain exceptional, Eecause it is they who determine who leads. 2ne area in which non-proÀt organizations have an advantage over for-proÀt entities in remaining exceptional is that their ownership structures do not typically change from one generation to another. Non-proÀts are held as a puElic trust. 2n a trip to England, I visited The University of 2xford, which traces its existence Eack over eight hundred years. Its ownership has not changed. 2wners of for-proÀt organizations, however, have personal wealth

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associated with their ownership, which may Ee sold to meet individual needs or to Ee distriEuted to others. The resulting new owners may or may not have an understanding of what characterizes an exceptional organization, much less have a desire to see it continue. How many for-proÀt organizations, whether exceptional or not, have existed for over one hundred years? Yes, exceptional organizations do fail. For those leaders who wish to perpetuate such entities, the easier task is dealing with the vagaries of the marketplace. The more serious challenge is determining who will succeed them, and in the case of for-proÀt entities, inÁuencing owners and their Eoards of directors to see their institutions as having intrinsic value in their own right, not Must as a source of Ànancial wealth. QUESTIONS FOR REFLECTION

z Whether or not you have worked there, what organizations do you think are exceptional? What is the Easis for drawing your conclusions? Are these forproÀt or non-proÀt entities? z If you have ever worked for an organization you thought was exceptional, do you still consider it so today? What factors have resulted in its either remaining exceptional or failing to do so? RELATED CHAPTERS

z Essays:

To Be Exceptional: 60 The Servant as Leader: 65

21

“ANY LUCK?” I Eelieve in luck³Eoth good and Ead. Luck is another way of saying that we cannot control events³that we cannot control all of the factors that impact a speciÀc result. However, we can make a difference. Although the idea that “we cannot control events,” Eut that “we can make a difference” may at Àrst appear contradictory, it is not. It is derived from the same concept which has evolved in the scientiÀc community over the past Àfty years³namely, that to a much greater degree than ever thought Eefore, all things in our world are interconnected. In 1960, Edward Lorenz, an MIT meteorologist, used one of the Àrst high-speed main-frame computers to simulate weather patterns. What he found, to his great surprise, was that very small changes in the initial conditions³rounding off Àgures in equations from six decimal places to three³ might shift a proMected weather pattern from a Eright sunny day to a rainstorm. He immediately concluded that it would Ee impossiEle to predict weather for anything Eut the most immediate time period. His discovery Eecame associated with “the EutterÁy effect,” whereEy a EutterÁy Áapping its wings in Hong Kong might impact the weather in New York City. Today, you can think of the spread of a particular Áu strain from its origin to countries around the world in a matter of days and the compounding of a gloEal Ànancial crisis from one institution to another as further examples of this 121

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phenomenon. In summary, all things in our world are interconnected. The Àrst idea that “you cannot control events” is supported not only Ey the concept that all things are interconnected, Eut also Ey our common sense and common experience. In the 1972 2lympics held in Germany, the United States Àelded what was thought to Ee the Eest team ever of 100 meter sprinters, and everyone was talking aEout a 1-2-3 sweep of the 2lympic medals³a gold, a silver and a Eronze. Guess how these sprinters actually Ànished. “Did they win the gold?” No! “Did they win the silver?” No! “The Eronze?” No! In fact, no U. S. sprinter Ànished in the top ten. How did this happen? 2n the day of the qualifying heats, the U. S. team showed up in the afternoon, only to learn that their heats had Eeen run in the morning, and the entire team had Eeen disqualiÀed. Their coach had misread the schedule. When interviewed on television, the athletes, one after the other, would say how they could accept losing in a race, Eut never to compete after preparing for years was Must devastating. The point is that no matter how hard you try, how well you prepare, you cannot control all of the variaEles to assure a speciÀc result. Something can still go wrong. At the 1972 2lympics, the EutterÁy effect was “a schedule read incorrectly.” This Erings us to the second idea that “you can make a difference.” This thought is merely viewing the EutterÁy effect from a different perspective. In the Àrst instance, the EutterÁy keeps you from controlling events. With the second idea, you Eecome the EutterÁy³inÁuencing not only events directly around you, Eut potentially over a much Eroader landscape. A movie titled Lorenzo’s Oil tells the true story of a Eoy named Lorenzo who contracts a rare degenerative Erain disease called ALD, which over a period of years destroys Erain function leading to death. Lorenzo·s parents, Augusto and

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Michaela 2done, are told Ey the doctors that there is no cure for the disease and no hope for Lorenzo. They ask if any research is Eeing done on the disease. The doctors say “No” Eecause the disease is so rare there is no funding for it. But the 2dones do not simply accept this fate. They head for the liErary at the National Institute for Health. There, they discover that, while there was some research relevant to ALD, none of the researchers were aware of the others· Àndings. To Ering the researchers together, the 2dones sponsored the Àrst international conference on ALD. The conference led to the idea of a potential solution, which the 2dones, through sheer perseverance, shepherded through to the development and trial production phase. After several iterations, a formula was found that arrested Lorenzo·s deteriorating condition. It did nothing, however, to correct any of the previous damage done. The 2dones shared their results with the parents of other ALD Eoys, who then put pressure upon the FDA to approve what Eecame known as “Lorenzo·s 2il.” The time taken to create this drug and have it approved was less than three years and at a minimal cost. A typical new cure for a disease would take ten or more years and hundreds of millions of dollars. The 2dones show us that individuals can make a difference. But, were they aEle to control events? Clearly not. If they were, they would have cured their son the Àrst day that he experienced this disease. However, Lorenzo lived many years longer than his doctors thought possiEle. Moreover, hundreds of Eoys treated soon after the onset of this illness are now leading near normal lives. The 2dones could not control events, Eut they could make a difference³a difference for a Eetter world. They Eecame “the EutterÁies Áapping their wings.” The oEservation that you cannot control events, Eut that you can make a difference has two implications. First, luck³

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that is, events outside our control³has a lot to do with what happens in our lives. In the previously-mentioned Eook, The Black Swan, Nassim Nicholas TaleE makes the point that contrary to what we might normally think, the most important circumstances in our lives are often the result of highly improEaEle events. American Woodmark had the good fortune of completing its acquisition of Boise Cascade·s caEinet Eusiness on May 1, 1980. Had the closing Eeen scheduled a month later, the transaction would have never occurred. In -une, 1980, the Federal Reserve, in its effort to Àght inÁation, Eanned the type of leveraged-Euyout Ànancing that we needed to complete the purchase. We were lucky. Since luck does play a role in our lives, we should not let huEris cloud our perspective when things go well. We should appreciate the fact that whatever talents we have and whatever efforts we apply, luck³good luck³also plays a role. 2n the other hand, when things don·t go so well, and we have done our Eest, we shouldn·t Ee so hard on ourselves. Luck³in this case, Ead luck³also played a role. In my life, I have had things go very well, and I have suffered tragedies. Luck³or events I could not control³has played a role in Eoth. The second implication is that, “Seeking to make a difference in your life is a choice.” 2ne person who has inÁuenced my outlook on life is Viktor Frankl, author of the already cited Man’s Search for Meaning, which descriEes his experiences in Auschwitz. He lost his wife and parents Eut managed to survive himself. He commented in the preface to the Eook: Don’t aim for success—the more you aim at it and make it a target, the more you are going to miss it. For success, like happiness, cannot be pursued; it must ensue, and it only does so as the unintended side-effect of one’s personal dedication to a cause greater than oneself or as the by-product of one’s surrender to a person other than oneself.1

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The 2dones are examples of such dedication. While we cannot guarantee a speciÀc result in our lives, we can create meaning Ey serving others and dedicating ourselves to causes greater than ourselves. You will have an untold numEer of opportunities to create such meaning in your lives. You can make a difference. The choice is yours. QUESTIONS FOR REFLECTION

z Have the choices you have made and the effort you have extended played a role in your life? Has luck played a role? z Where do you Ànd meaning in your life? RELATED CHAPTERS

z Essays:

Imagine and Inspire: 69 “What Do I Want?”: 78

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SECTION

3

Section 3

LESSONS OVERVIEW This section presents lessons that provide the education and training necessary to help make the vision of an exceptional organization a reality. The lessons are divided into four parts, corresponding to the presentation of the essays: “The Vision,” “The Leader,” “Processes and Tools” and “The -ourney.” At the end of each lesson is a “Future Study” segment, which when completed will reinforce the learning. Also included is a cross-reference to related lessons and essays.

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THE VISION OVERVIEW This section presents three lessons that support the vision-related essays. The Àrst, “Vision-Driven 2rganizations,” shows how exceptional enterprises organize work Eoth in the pursuit of their purposes and in the creation of Eusiness strategies that generate signiÀcant and sustainaEle cash Áows. The second, “Culture,” presents four elements that comprise a culture and shows how these elements inÁuence Eehavior. The third, “Values,” provides an understanding of the core values we live Ey and their universality across societies.

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VISION-DRIVEN ORGANIZATIONS This lesson provides a Easic understanding of what it is that organizations do to achieve their purposes. It shows that exceptional organizations create visions that support their purposes and organize all activities around their achievements. It descriEes the creation of Eusiness strategies for sustainaEle cash Áows, the importance of aligning work and the need to continuously evaluate reality to assure that actions taken continue to Ee appropriate. This material is Eased upon William -. 2·Brien·s Eook, The Soul of Corporate Leadership and Ey RoEert Fritz·s, The Path of Least Resistance for Managers.

ORGANIZING PRINCIPLE The vision-driven organizing principle is the pursuit of amEitious end results which, when achieved, support the entity·s purpose. All activities are focused upon the achievement of the organization·s visions, and all decisions are made Eased upon the merits of whether or not they support them. An important aspect of the vision-driven organization is that it deÀnes not only the work to Ee done Eut also the work to Ee eliminated. In the aEsence of a vision-driven organizing principle, actions are frequently independent of the organization·s purpose. This is especially true when the motivation for action 130

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shifts to meeting the needs of those higher up in the hierarchy. When this occurs, decisions are not made on their merits, Eut rather to please the Eoss. This leads to a lack of organizational effectiveness resulting in wasted or misguided efforts. The vision-driven organizing principle is Eased upon a discrepancy Eetween what we want³our vision³and what we have³our current reality relative to this vision. This discrepancy creates tension which leads to action to resolve the tension. This tension is resolved once the vision Eecomes the reality. As shown in ExhiEit 22.1, work is organized into a hierarchy throughout the organization where actions at the highest level to achieve the organization·s purpose Eecome visions at succeeding lower levels, where more speciÀc actions are taken. For example, the action steps for Level I Eecome visions for level II. The actions for Level II then Eecome visions for Level III.

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2rganizing work on a level-to-level Easis assures that all actions necessary to achieve the organization·s purpose are clearly estaElished and are organized according to whoever is responsiEle for their achievement. As part of the 1995 Vision, American Woodmark Eecame a vision-driven organization. Goals at various levels in the hierarchy were reÁected in scorecards, which consisted of performance expectations necessary to support the next higher level in the hierarchy. This approach focused work on only those activities that were essential for moving the organization forward and was suEstantially superior to our previous work processes. With the success of the 1995 Vision, the company created a 2001 Vision and suEsequent visions for 2007 and 2013.

BUSINESS STRATEGY 2ne action step at the highest level of the organization is the creation of its business strategy, which along with other action steps, supports the organization·s purpose. A Eusiness strategy, also referred to as a business model, is the vehicle Ey which organizations generate cash Áow³either in the form of proÀts or, as some non-proÀts prefer to call it, “excess revenues over expenses.” By doing so, for-proÀt organizations create wealth for owners, while non-proÀts generate cash reserves³the equivalent of wealth³to Ee held Ey them for the puElic good. ViaEle Eusiness strategies create competitive advantages; meaning that customers, clients and Eenefactors value their products, services or causes more than the offerings of competing organizations. For enterprises to Ee sustainaEle, they need to maintain or increase their competitive advantages over time.

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THE DYNAMICS OF A BUSINESS STRATEGY A Eusiness strategy is Eased upon the interrelationship of three elements: clients, providers and competitors. If what the provider offers matches what clients want, Eoth parties EeneÀt. The provider earns positive cash Áow, and clients gain value Ey procuring the offering. ExhiEit 22.2 illustrates this principle. The greater the intersected area, the greater the potential value creation for Eoth parties.

As the value accruing to the provider increases, however, so will the likelihood that competitors will want to capture some of that value Ey providing an alternative offering to clients. If they do, the original provider will see its value diminish as clients procure competitors· offerings. ExhiEit 22.3 demonstrates these relationships.

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The key to creating a Eusiness strategy is not only to create a viaEle Eusiness transaction, Eut also to maintain this relationship over time. To do this requires some mechanism that acts as a Earrier to protect the provider·s relationship with its clients from competitors as illustrated in ExhiEit 22.4. The challenge for the provider is twofold³to increase the value of the client/provider match, the intersected area in ExhiEit 22.3, and to strengthen the Earriers, as shown in ExhiEit 22.4, that Elock the incursion of competitors upon this client/ provider relationship. Successful Eusiness strategies do Eoth.

CREATING A BUSINESS STRATEGY A starting point in the creation of a Eusiness strategy is the consideration of a checklist of questions relative to each party and their interrelationships. CLIENTS

z What offerings do clients want? z How high a price can they pay and still receive value for themselves? z What is the numEer of potential clients³the size of the market? z Can the market Ee segmented Ey more focused, desired offerings? z How can clients learn aEout the offering? z How can clients get the offering? z What will motivate them to Euy? z How quickly are client desires suEMect to change?

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PROVIDERS

z What offerings can they provide? z What offering price can they accept and still receive value? z What is the minimum quantity they can provide and still receive value for themselves? z What are their capaEilities³market research, offering development, productive capacity, human resources, Ànancial assets and other relevant capaEilities? z What impact would the providing of the offerings have on any other aspect of the organizations· Eusinesses? z Are there any limitations that would hinder the development and delivery of the offerings to clients? COMPETITORS

z Can competitors develop offerings of equal or greater value than that of the providers and still receive value for themselves? z What offering price can competitors accept and still receive value? z What is the minimum quantity they can provide and still receive value? z What are the competitors· capaEilities³market research, offering development, productive capacity, human resources, Ànancial assets and others relevant? z What impact would the providing of the offerings have on any other aspects of the competitors· Eusinesses? z Are there any limitations that would hinder the development and delivery of competitors· offerings to clients?

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CLIENT/PROVIDER RELATIONSHIPS

z Is there a match Eetween what clients want and what providers can deliver? z How long is this match likely to last, given the potential changing desires of clients? z Is the potential value for providers signiÀcant enough to warrant the creation of Eusinesses to provide these offerings? COMPETITOR/CLIENT/PROVIDER INTERRELATIONSHIPS

z Can providers create Earriers such that competitors are unaEle to disrupt the client/provider relationships? z Can providers create Eusiness strategies that generate signiÀcant and sustainaEle cash Áow for their enterprises? There must Ee satisfactory answers to the aEove questions to create an adequate strategy. A simple example is the decision as to whether or not to open a lemonade stand. Do people want lemonade? What will they pay for it? How many people will walk Ey? What will it cost to provide the lemonade? Will there Ee enough proÀts to warrant opening the stand? What are the capaEilities necessary for providing the offering? If a stand is opened now, will it preclude someone else from opening a similar stand nearEy? While the issues impacting such a decision are straightforward, for more complex situations a signiÀcant amount of time and effort will Ee required. The creation of a Eusiness strategy is more art than science. There is no formula. The principles apply to organi-

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zations large and small and for-proÀt and non-proÀt. Since 1983, American Woodmark has had essentially two different strategies. From 1983-1988, the company gained a competitive advantage Ey Eeing the only manufacturer in the country which, as a result of its network of distriEution centers, could deliver kitchens within two weeks of order placement. This aEility was particularly important to home centers which wanted to offer consistent programs across the country. This strategy evolved naturally as we took steps to meet customer needs. 2ur second strategy was developed as part of our 1995 Vision which, while retaining the aEility to offer kitchens with two-week lead-times, also signiÀcantly expanded our aEility to provide Eoth greater product variety and multiple Erands. In contrast to our prior strategy, this one resulted from the insight inspired Ey the reading of a Eusiness puElication. Although modiÀed over time, it has served the organization well for the past twenty years. 2nce a Eusiness strategy is created, it will Ee necessary to continuously monitor the changing reality among clients, the provider and potential competitors. If the dynamics that led to the strategy·s creation change, then it may Ee necessary to adMust the Eusiness strategy as appropriate.

EXECUTION The vision-driven organization executes all activities, including its Eusiness strategy, Ey creating a hierarchy of descending actions down through all levels in the organization. Each action supports the achievement of a vision. To assure their attainment, performance measurements are taken to determine progress and where necessary modiÀcations are made. By doing so, the execution of work throughout the organization is self-correcting, increasing the likelihood that the organization·s purpose will Ee achieved.

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IMPLICATIONS FOR LEADERS The following checklist is a guide for structuring work according to the vision-driven organizing principle. .

CHECKLIST

1. Create a vision that supports the achievement of the organization·s purpose and mission. 2. Examine the organization·s current reality relative to this vision. 3. Develop high-level action steps that, if achieved, will take the organization from its current reality to its vision. 4. As one of the highest-level action steps, create a Eusiness strategy that enaEles the organization to generate a signiÀcant and sustainaEle cash Áow. 5. Develop a hierarchy of lower-level action steps down through all levels of the organization. 6. Eliminate work that is not needed to support the vision. 7. Measure performance and modify actions as necessary. 8. Achieve the vision.

SUMMARY “Vision-driven” is one of the four organizing principles of an exceptional organization. Such an entity organizes all work around the achievement of a vision in support of its purpose. It creates a hierarchy of work descending down through all levels of the organization. It measures its performance against its desired results and modiÀes its actions as nec-

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essary to achieve its vision. 2ne of the highest-level action steps is the creation of the organization·s Eusiness strategy, which enaEles the entity to generate a sustainaEle cash Áow. FUTURE STUDY

z For your organization, address each of the questions in the checklist listed for creating a Eusiness strategy. Answer whether or not you Eelieve your organization·s existing Eusiness strategy is viaEle and sustainaEle. z If your organization·s strategy is not adequate, can you develop a plan to modify it, so that it may Eecome viaEle and sustainaEle. RELATED CHAPTERS

z Essays:

To Be Exceptional: 60 Yes, Even for Non-ProÀts: 93

z Lesson:

Working in Alignment: 244

23

VALUES This lesson provides an understanding of values³those that are mere preferences and those that are core to our lives. It descriEes how individuals can develop their core values and the importance of these Eeing consistent with those of the organization. It presents a desired governance structure for exceptional organizations that is Eased upon society·s highest principles.

BACKGROUND This material is Eased upon the works of; Rushworth M. Kidder in his Eooks, How Good People Make Tough Choices and Shared Values for a Troubled World and William -. 2·Brien in his Eooks, The Soul of Corporate Leadership and Character and the Corporation.

WHAT ARE VALUES? Webster’s Dictionary deÀnes a value as “that which is worthy of esteem for its own sake; that which has intrinsic worth.” A value, therefore, is something that is an end in itself and not something desired as a step toward achieving another result. Under this deÀnition, freedom is a value, Eut so is eating chicken if it is done for its own sake. In his Eook, How Good People Make Tough Choices, Rushworth Kidder distinguishes Eetween what he refers to as lettuce values and those which help us answer the question, “What is right?”³which 141

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he calls core moral values or simply “core values.” The word “moral” means that which is good, right or ethical. Kidder indicates that most people have an understanding of good³ “they know it when they see it.” We understand this at an inner level Ey a deep sense of intuition or Mudgment. Because our values are intrinsically worthy and are ends in their own right, it follows that they are freely chosen. If they were not, they would Ee in the service of something else we desire. For example, individuals might Ee kind and respectful of others in the presence of someone of higher authority who would punish them if they were not; Eut in the aEsence of this higher authority, they might Ee mean-spirited. In this instance, these individuals would not “value kindness and respect for others,” Eut would practice it only in the service of a higher desire³not to Ee punished. Although most people understand what is right or good, they do not necessarily value what is right or good. Those that truly do value kindness and respect Eehave accordingly regardless of the circumstances. Before continuing, you may wish to stop and quickly list on a separate piece of paper what it is that you value. Include whatever comes to mind, without regard to whether it is a lettuce or core value. Continue until you have twenty to thirty items listed. Review your list and put an “x” Eefore any item which you desire for its own sake, not Eecause it helps you achieve another desire. For example, you might have listed “money,” Eut for you its signiÀcance may only Ee that it helps you to get other things such as a home, a car or an education. 2thers might want money for its own sake. Finally, circle those items which you consider to Ee your core values. This exercise is not meant to Ee an all encompassing compilation, Eut rather a way for you to Eecome more conscious of what you value.

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DEVELOPING CORE VALUES— THE INDIVIDUAL Most of us have estaElished core values that guide our lives. For a few, this process has Eeen an active choice with much study and reÁection. For others, values have evolved over time without conscious awareness. Regardless of where we are in our moral development, there remains the possiEility for us to continue developing our core values for as long as we live. In his previously mentioned Eook, The Soul of Corporate Leadership, William -. 2·Brien descriEed this endeavor as a striving for what he called moral excellence, which means “emEracing, with vigor and commitment, age-old moral truths and pursuing their practice.” Individuals who actively pursue the development of their core values will Eecome more morally mature and will more likely approach a state of moral excellence. We can outline the process for developing core values as follows: z aspiration³Actively consider the core values and the resulting Eehaviors to which we aspire. Freely choose our desired values and expected Eehaviors. z current reality³Examine our previously held values and resultant Eehaviors relative to our aspirations. z action³Modify our Eehaviors according to our aspirations. An example of this process is as follows: AN EXAMPLE OF DEVELOPING CORE VALUES

z Aspiration³“After oEserving others, listening to people who I respect, and reÁecting, I want to Ee honest in every way that impacts the well-Eeing of another person.”

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z Current reality³“I rarely lie, Eut in the past I have sugar-coated the truth to make people feel Eetter, when they would have Eeen Eetter served Ey my telling them the unvarnished truth.” z Action step³“When I am in these situations, I will consciously act to Ee completely candid.” By consciously examining our moral foundation, we will more likely live our lives according to our highest values and aspirations.

DEVELOPING CORE VALUES— THE ORGANIZATION In his Eook, How Good People Make Tough Choices, Kidder states that organizations frequently attempt to answer the questions, “What are our core values?” or “What is right?” Ey adopting a code of ethics. The code is a guideline for Eehavior for the organization·s memEers. A code is characteristically Erief, not usually explanatory, and focused on core values. It can Ee expressed in a numEer of forms. He gives two examples: EXAMPLES OF CODES OF ETHICS

Girl Scout Law A Scout is: ‡ Trustworthy ‡ Loyal ‡ Useful ‡ Friendly ‡ Courteous ‡ Kind to Animals ‡ 2Eedient ‡ Cheerful

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‡ Thrifty ‡ Clean in thought, word and deed

The West Point Honor Code ‡ A cadet does not lie, cheat, or steal or tolerate those that do.1

Each of these codes highlights Eehaviors that are valued and which answer the question of what is right. In a second Eook, Shared Values for a Troubled World, Kidder descriEes interviewing twenty-four ethical leaders from sixteen countries. He posed the question, “If you could formulate a gloEal code of ethics for the twenty-Àrst century, what would Ee in it?” A numEer of the common themes that developed from the interviews were: COMMON THEMES ‡ Love ‡ Truth ‡ Fairness ‡ Freedom ‡ Unity ‡ Tolerance ‡ ResponsiEility ‡ Respect for life.

Reading this list, you will likely conclude that these are familiar themes. They reÁect values for living that have maintained relevancy over the ages. While many organizations articulate their core values in either a code of ethics or a mission statement, the reality is that relatively few come close to Eehaving according to

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them. Some organizations use such statements to intentionally mask their real Eehavior and thus act fraudulently with their constituents. 2thers, however, have good intentions, Eut are simply overwhelmed Ey the structures within their organizations which preclude these intentions from coming to fruition. Many organizations have as their primary organizing principle a command-and-control governance structure. With this structure, those higher in the hierarchy give orders to those Eelow for execution. Those higher up control Eehavior Ey monitoring performance and administering rewards or punishments as appropriate. Under this structure, power and knowledge are typically hoarded at higher levels, and those Eelow are focused upon “doing” more so than “thinking.” This structure Ey its nature puts the emphasis upon pleasing the Eoss and acting in self-interest to gain rewards and avoid punishments. While command-and-control Eased organizations may ofÀcially espouse acting according to core values, their governance structures usually hamper memEers from doing so. Moreover, other than declaring values in a code of ethics or mission statement, they typically have few supporting structures to foster higher moral formation. An alternative governance structure, as descriEed Ey William -. 2·Brien in his Eook, Character and the Corporation, is one that is value-based, where memEers pursue Eoth “self-interest” and “concern for others” and Eehave according to the merits of what is Eest for the organization. Power and knowledge are shared, and individual memEers hold themselves accountaEle for goal achievement and acting according to estaElished values. While power is shared, those higher up in the organization maintain their hierarchical power and use it as necessary. Such a structure creates an environment that encourages personal growth Eoth in skill development and moral formation.

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2n a spectrum with command-and-control governance on one end and value-Eased governance on the other, American Woodmark·s 1995 Vision was an attempt to shift its structure to one that was more value-Eased. This desire stemmed in part from our new strategy, which required greater employee involvement in decision-making. We utilized EroadEased training³incorporating many of the principles in this Eook³to help make this transition. This training helped people to Eetter understand the merits of what was in the Eest interests of the organization so that they could act accordingly. Previous to this initiative, our mission statement values of customer service, integrity, teamwork and excellence were espoused Eut not well supported. A primary component of the 1995 Vision was to create processes that enaEled the organization to live up to these principles.

INTEGRATING INDIVIDUAL AND ORGANIZATIONAL VALUES Although organizations may adopt certain values or guidelines for Eehavior, their memEers can freely choose whether or not they will adopt these same values personally. While behavior may Ee coerced to a certain extent, no one can Ee coerced into adopting a personal value. An organization·s memEers will Ee more effective and more satisÀed when the match Eetween their personal values and those of the organization are compatiEle. Individuals and organizations will Ee most effective when the organization fosters, and individuals pursue, moral excellence. Where respective values are at cross-purposes, the individual and the organization may separate if the organization concludes that the individual·s Eehavior is inconsistent with the organization·s expectations or if the individual self-selects out of the organization. When the individual and organization share similar values, the intentions and actions

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of Eoth parties are mutually reinforcing, enhancing Eoth the achievement of the organization·s purpose and the personal growth of its memEers.

IMPLICATIONS FOR LEADERS The following checklists serve as guides for Eoth individuals and organizations for developing and acting according to their core values. CHECKLISTS

For Individuals: 1. Ask, “What are my core values and resulting desired Eehaviors?” 2. Determine current Eehaviors relative to those desired. 3. Take action to Eehave more in line with one·s core values. 4. Measure performance and modify actions as necessary to achieve desired results. For 2rganizations: 5. EstaElish the organization·s purpose and mission. 6. EstaElish the organization·s core values that will guide Eehaviors in the achievement of its mission. 7. Form a value-Eased governance structure whereEy memEers hold themselves accountaEle for acting according to the organization·s aspirations, values and expected Eehaviors. 8. Put in place mechanisms to correct Eehaviors that are not consistent with the organization·s expectations.

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SUMMARY A value is that which is worthy of esteem in its own right. Core values help us answer the question, “What is right?” Values cannot Ee forced. They are freely chosen. However, they can Ee developed. 2rganizations frequently state their values in a code of ethics or mission statement. While many organizations espouse ethical values, relatively few live Ey them. Value-Eased organizations are the exception. They act according to what is Eest for the organization, guided Ey society·s highest principles, and they foster the moral development of the individual. FUTURE STUDY

z Ask yourself, “Do I want to pursue the development of my core values?” If you answer, “yes,” use the “aspiration,” “current reality,” “action steps” tool as a methodology to develop one or more of them. z If you have Eeen associated with an organization that has espoused Eehaving according to ethical principles, evaluate whether the organization·s Eehavior in practice is consistent with these principles. RELATED CHAPTERS

z Essay:

Nice Guys Finish Last: 54

z Lessons: Culture: 150 Human Motivation: 225

24

CULTURE This lesson explains the nature of cultures in organizations and their importance in shaping Eehavior. It descriEes one type of culture that acts as a key organizing principle for the creation of exceptional organizations.

DEFINITION Webster’s Dictionary gives two deÀnitions for a “culture:” z the customary Eeliefs, social norms and material traits of a racial, religious or social group z the integrated pattern of human knowledge, Eelief and Eehavior that depends upon man·s capacity for learning and transmitting knowledge to succeeding generations. These deÀnitions relate to a range of social groups, institutions and societies. We can adapt these deÀnitions speciÀcally for organizations Ey deÀning a culture as the values, beliefs, traditions and processes that guide Eehavior, or more simply, how we do things around here. This deÀnition is illustrated in ExhiEit 24.1. When interconnected, the organization·s values, Eeliefs, traditions and processes form its culture.

FOUR ELEMENTS The four elements of a culture can Ee descriEed as follows. 150

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VALUES: As presented in the previous chapter, a value is something that is worthy of esteem for its own sake, something that has intrinsic worth. 2f relevance here are core values, which guide people as to what is right. Examples of core values are “honesty,” “responsiEility,” “freedom,” “caring,” “integrity” and “excellence.” Values shape Eehavior. Someone who values “caring” may Ee more considerate of those who are suffering. BELIEFS: WeEster deÀnes a Eelief as, “a state of mind in which trust or conÀdence is placed in some person or thing.” People hold Eeliefs to Ee true, even though they may Ee unaEle to adequately prove their main contentions to others whom may or may not agree. For example, the Eelief that “people are Easically kind” may Ee strongly held, Eut difÀcult to prove. It is important to make a distinction Eetween Eeliefs and knowledge. Plato said that knowledge is a “MustiÀed true Eelief.” So a Eelief is knowledge, or the truth, if the Eeliever has a MustiÀcation that is reasonaEly plausiEle Eased upon evidence. Until the discoveries of Copernicus the statement “the sun revolves around the earth” could arguaEly Ee considered knowledge Eecause there was reasonaEle and plau-

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siEle evidence to that effect. 2f course, that “knowledge” was deEunked Ey Copernicus. We can also distinguish Eetween Eeliefs and mental models. A mental model is “our internal picture of how the world works.” It is Eased upon the meaning we derive from the selective data we attend to. For example, the mental model “all our clients care aEout is cost” could Ee Eased upon data that showed that whenever new features were offered for a price premium, they were not purchased. Beliefs and mental models are very similar and can often Ee used interchangeaEly. A suEtle difference is that people who hold mental models more frequently think that their mental models are knowledge or “the truth,” Eecause they think that they have “proven” their position. People who hold Eeliefs Ey “placing trust or conÀdence in a person or thing” are less likely to think that their Eeliefs are the truth, Eecause a Eelief Ey deÀnition implies that the truth is not known, otherwise it would not Ee a Eelief in the Àrst place. TRADITIONS: We can deÀne traditions as the handing down of information, Eeliefs and customs Ey word of mouth or Ey example from one generation to another without written instruction. Examples of traditions in organizations are: z meaningful stories told aEout past experiences that Eecome part of the entity·s folklore z ceremonies that remain consistent over time z Eadges, medals, pins and other forms of recognition awarded in the present as in the past z any symEolic Eehavior that links the present with the past. Traditions shape Eehavior. Hearing stories aEout how people Eehaved in the past will inÁuence people to Eehave in a similar manner in the future. Traditions can create a sense of Eeing grounded, having roots and Eelonging.

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PROCESSES: We can deÀne processes as the policies, procedures, methods, tools, programs and trainings used to do the work of the organization. Examples of processes, some of which are included in this Eook, are as follows: z employee orientation programs z decision-making tools z meeting management procedures z incentive plans z strategy development plans z working-in-teams guidelines z aEsentee policies z quality programs z procedures for performance evaluation. Processes are speciÀcally designed to guide the Eehavior of individuals in organizations.

CREATING A VALUE-BASED CULTURE Every organization has a culture. It may Ee deliEerately crafted, or it may evolve without any conscious thought to its creation. Some cultures are weak in that there is little consistency in Eehavior from one part of the organization to another, while others are strong, where Eehaviors are consistent across the enterprise. The culture may Ee highly functional in that it supports the organization·s mission and values, or it may Ee dysfunctional and hinder the achievement of the entity·s aspirations. Furthermore, a culture which may have Eeen appropriate at one stage in an organization·s life may Ee inappropriate for the entity·s next stage. Exceptional organizations have strong cultures whose governance structures are value-based, as descriEed in the pre-

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ceding chapter. Value-Eased governance structures emphasize Eehaviors in accordance with the merits of what is Eest for the organization. While this principle is easy to emErace in principle, it is very difÀcult to put into practice. Fostering such Eehaviors is an organizing principle around which the culture is Euilt. It requires a clear understanding of the organization·s mission and values. It necessitates the sharing of knowledge, the development of skills and the applications of appropriate tools so that people have a Easis for deciding what has merit. It encourages the sharing of power within Eoundaries set Ey those higher in authority so that people have the freedom to take action. Finally, it requires that the organization·s memEers Ee willing to make the appropriate choices, realizing that they will Ee held accountaEle for them Ey Eoth the organization·s standards and their own sense of what is right or wrong. With this approach, the four Euilding Elocks of the culture³values, Eeliefs, traditions and processes³are consciously chosen. The values are not only those that are universal to society·s highest principles, Eut also ones that are unique to the speciÀc enterprise³for example, “constant innovation,” “superior customer experience” and “outstanding patient care.” An exceptional organization·s beliefs are chosen not only Eecause they may Eest represent reality, Eut also Eecause they inform the organization·s memEers on how Eest to act in support of the entity·s vision. An example would Ee, “Paying more for the highest quality reduces costs in the long run.” Traditions are estaElished to help the organization·s memEers to Eecome grounded in those aspects of the enterprise·s heritage that has allowed it to Eecome what it is today. These traditions not only give people a sense of place Eut also reinforce those values and Eehaviors that have served the organization well in the past and which are expected to contin-

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ue doing so in the future. Storytelling, award ceremonies and the celeEration of milestones are examples of such traditions. 2rganizations employ a numEer of processes to run their operations³the larger the entity, the greater the numEer. It is critical to the creation of exceptional organizations that each process Ee designed not Must to accomplish a speciÀc task, Eut to do so in a manner that also reinforces the overall framework of the culture. An example would Ee the use of common decision-making, communication and team-Euilding tools across the enterprise. The processes included in this Eook are intended to support the creation of a value-Eased culture. Cultures drive Eehavior. A company I have always admired as having a strong value-Eased culture is the department store, Nordstrom. I recall a sales clerk at one of its locations who, on what was perhaps the most hectic sales day of the year, cheerfully packaged and wrapped together with riEEon several related Christmas gifts. As we talked, she commented on how much she loved working at Nordstrom. I asked her, “Why?” Although I had this experience more than twenty years ago, I will never forget her response. She said, “You always get a fair shake.” and, “There·s always someone who cares.”

IMPLICATIONS FOR LEADERS The following points are relevant. z Every organization has a culture, Eut the culture may or may not support the organization·s purpose and mission. z A value-Eased culture³one that holds Eoth universal societal values and those speciÀc to the organization³is critical to the formation of exceptional organizations.

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z The desired culture must Ee consciously constructed with attention paid to all of its Euilding Elocks³values, Eeliefs, traditions and processes. z Some existing cultural elements may no longer Ee appropriate while others may Ee required. z 2nce estaElished, the desired culture must Ee vigilantly safeguarded.

SUMMARY An organization·s culture has four key elements: its values, Eeliefs, traditions and processes. Cultures are important Eecause they guide Eehavior. A value-Eased culture focuses Eehavior Eased upon the merits of what is Eest for the enterprise. Such cultures are critical for the formation of exceptional organizations. FUTURE STUDY

z For organizations where you have Eeen a memEer, make a list of its values, Eeliefs, traditions and processes. Examine your list and make another list of Eehaviors that are inÁuenced Ey these key elements. RELATED CHAPTERS

z Essay:

To Be Exceptional: 60

z Lessons: Values: 141 Mental Models: 210 Cultural Change: 254

Section 3.2

THE LEADER This section offers two lessons that show how organizations can put into practice the principles descriEed in the essays on leadership. The Àrst, “Leaders and Followers,” descriEes the appropriate use of power and deÀnes who leads and who follows and when individuals should Ee in one role versus the other. The second, “Leadership Styles for Decision Making,” provides a framework for the leader·s use of Àve alternative decision-making styles and descriEes when it is appropriate to use each.

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LEADERS AND FOLLOWERS This lesson provides an understanding of the Eehavior of leaders and followers. It descriEes motivations for appropriate use of power, followers· attitudes toward a direction and the scope of individual responsiEility and accountaEility. It presents a new view for determining who leads and under what circumstances. This view provides a leadership framework integral to the formation of exceptional organizations.

DEFINITIONS As previously mentioned, the word “leader” literally means “the one who walks ahead.” If one is walking ahead, Ey implication there must Ee at least one other who follows, with the one in the lead setting the direction. Those who lead exist only to the extent that there are those who follow. Here we can deÀne leaders and followers: z Leader³one who pursues a particular direction and inÁuences others to move in that direction z Follower³one who is inÁuenced Ey another to pursue a particular direction. The direction pursued could Ee a literal direction with physical movement or any particular action or change in thought. With these deÀnitions, who leads and who follows is Eased upon behavior and not upon any predetermined status or rank. 158

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POWER 2ur society values powerful people³those who are in control and who can make things happen. For all its importance, however, the principle of power is often misunderstood, principally Eecause the word “power” has different meanings depending upon the context of its use. Webster’s Dictionary provides two related Eut different deÀnitions of power: z “a possession of control, authority or inÁuence over others” z “the aEility to act or produce an effect.” POWER AS CONTROL: The Àrst deÀnition descriEes a relationship Eetween two parties, where the Àrst party has the aEility to constrain, coerce or inÁuence the action of the second. The Àrst party has freedom of choice, while the second·s freedom is limited. With this meaning of the word, our society values those who have power over others. Those who are suEMect to such power are viewed as weaker and of less consequence. The king is valued more highly than his suEMects. POWER AS CAPACITY: The second deÀnition descriEes power as capacity³the aEility to take effective action. The capacity might Ee that of an individual acting alone, or it may result from an individual controlling the Eehavior of others. What is important is that the action Ee effective, not how it is taken. 2ur society values more highly those with greater capacity than those with less. A EaseEall player who Eats .400 is more highly regarded than one who Eats .280. 2ganizations of any type require Eoth types of power. Imagine a sailEoat race. The goal is to win the race. The captains are responsiEle for setting their courses and instructing their crews. They are continually monitoring wind changes and the position of their Eoats relative to others to make whatever maMor or suEtle changes are necessary to create an

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advantage. They need power as capacity in the form of skills necessary to evaluate possiEle courses of action and to choose course directions. They also need power over their crews so that their orders will Ee followed. If they are not, there will Ee chaos. In addition, it isn·t enough that crews Ee willing to follow directions, they must also have power as capacity to effectively perform their duties. HIERARCHICAL POWER: Hierarchical power occurs when power, as control, is prescriEed Eased upon a particular position or status. In our society, the formal governance of corporations is estaElished Ey a series of laws. Shareholders, who are the legal owners of a Eusiness, choose a Eoard of directors, who in turn choose a Chief Executive 2fÀcer to run the Eusiness. The CE2 makes decisions and takes actions within guidelines estaElished Ey the Eoard. The Eoard has hierarchical power over the CE2, who has hierarchical power over the rest of the company·s employees. SHARING POWER: Individuals who have hierarchical power may share this power with others. Ship captains delegate certain decision-making authority, or power, to others as they think appropriate. Although power is delegated, captains are still responsiEle to their superiors for the effective running of their ships and the actions of any of their suEordinates. If ships run aground, their captains are held accountaEle even if at the time they are off deck in their sleeping quarters. Furthermore, even though power may Ee delegated to others, it may Ee revoked at any time. In the formation of American Woodmark, as descriEed in the case study, I consciously chose to give up voting control of the company to my three cofounders if and when they decided to vote together in opposition to me. Why did I make this choice? First, I Eelieved that Ey sharing hierarchical power that I would increase the likelihood that these individuals, whom I considered vital to the new enterprise, would want

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to Moin the organization. Second, I thought that the company would have a Eetter chance of success. I had conÀdence in my leadership capaEilities, and I did not think it necessary to retain complete power as control to accomplish what I desired or to hold my position. By taking this action, I intended to expand power as capacity for Eoth my cofounders and the organization as a whole. I Eelieved that this structure would heighten each cofounders sense of personal responsiEility, Eecause each knew that he had freedom of choice³Ey either agreeing with me or Ey acting in concert with the other two. I considered this voting-power structure to Ee a contriEutor to our success, especially during the 1980-1982 time period when we were concerned aEout the company·s survival. During tough times, it is easy to Ànd fault with a leader·s direction, especially when one has no power to change things³ the typical Monday morning quarterEack. In our situation, we were aware that we all shared formal power for running the company, so each of us experienced a heightened sense of ownership and personal responsiEility. During these tough times, instead of Eecoming alienated with one another, we actually Eecame closer. Although we frequently disagreed, there was very little Ànger pointing; and we came to decisions we could all support, even though we individually might have preferred a different course.

APPROPRIATE USE OF POWER There are two motivations for the use of power: z Self-focused leadership³to focus solely upon the EeneÀts to oneself z Servant leadership³to serve a cause greater than oneself. Self-focused leaders motivate followers Eased primarily upon rewards and punishments appealing to the followers· own

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self-interests. As a result, followers tend to Eehave to “please the Eoss.” When such leaders· interests are in conÁict with organizations· purposes and values, they will often resort to manipulation, deception and other wrongful Eehaviors for their own advantage. They are more likely to “know the truth” than to seek it, Eecause they tend to see reality from the lens of what EeneÀts them. They will oversee the professional development of followers only to the extent that they will EeneÀt themselves. In summary, their own interests take precedent over those of the organization. Servant leadership is characterized Ey Eehaviors Eased upon what is right for the organization. Servant leaders motivate followers Ey inspiring them to serve a cause greater than their own self-interests. When necessary, such leaders suEordinate their own interests to the service of their organizations. They do what is right in accordance with their entities· purposes and values and are more likely to “seek the truth” than to “know it.” These leaders nurture and mentor followers, and as a result Eoth their organizations and their followers EeneÀt Eeyond the horizon of their tenures. In summary, the organizations· interests take precedent over those of their leaders. The right motivation for the use of power is servant leadership, not self-focused leadership. While Eoth self-focused and servant leaders use Eoth “power as capacity” and “power as control,” servant leaders use their power to achieve their organizations· visions and to create environments where memEers freely choose to pursue them. Such leaders increase power as capacity for themselves and their organizations· memEers. Finally, they share power through delegation, while maintaining hierarchical authority. Servant leadership supports the organizing principles of “Inspiration” and “Right Person / Right -oE” which are key elements of exceptional organizations.

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LEADER AND FOLLOWER RELATIONSHIPS We may categorize leader-follower relationships according to two criteria: Àrst, whether the leader·s inÁuence is direct and face-to-face or indirect and more distant; and second, whether the leader has hierarchical power over the person inÁuenced. ExhiEit 25.1 shows examples of leader-follower relationships which Àt each of the resulting four categories.

As infants, our parents are typically the Àrst leaders we face. They have hierarchical power over us. As we grow, teachers and others soon Moin this group. Grandparents and school principals also have hierarchical power, Eut their leadership inÁuence is less direct. Even though they have no formal authority, siElings, coworkers, friends and even onetime acquaintances may directly lead us. Furthermore, people whom we have never met personally and have no formal authority over us³sports heroes, authors, world leaders and celeErities³may signiÀcantly impact our thoughts, feelings and Eehaviors.

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CHARACTERISTICS OF LEADERS AND FOLLOWERS 2ur society places a higher value on leaders than followers. For example, there are a multitude of Eooks written on how to lead, while there are very few on how to follow. Furthermore, we tend to ascriEe different characteristics to leaders than to followers. Take a moment to complete the quiz in ExhiEit 25.2.

We typically think that leaders are more likely to exhiEit these characteristics than are followers. Most of us, when asked to descriEe leaders we know, list people who have unique talents or skills that we admire. When asked to list followers, we frequently descriEe people whom we hold in lesser regard. Furthermore, many of us tend to laEel ourselves as either leaders or followers. These laEels then serve as guides to our Eehavior, which in turn reinforce our selfimages. The reality is that Eoth leaders and followers have the potential to exhiEit the characteristics listed aEove.

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FOLLOWERS’ ATTITUDE TOWARD A DIRECTION -ake Gosa, former CE2 of American Woodmark, descriEes three Eeliefs aEout human Eehavior that are instrumental in our thinking aEout leaders and followers. 1. People want to be led—People have always organized around leaders, from triEal chief to kings, appointed leaders and elected ofÀcers. A leaderless group is a moE. Few people will choose anarchy over staEility and predictaEility. 2. People want to contribute³People have a Easic need to Ee valued for their contriEutions. Who goes home at night and says, “Honey, I screwed up the new product launch?” 3. People want to be respected—We are taught from childhood that, “all people are created equal” and that we have the same Easic rights. We respond positively to an act of respect and negatively to an act of disrespect.1 How well these “wants” are met will impact how followers respond to a leader·s direction. In his Eook The Fifth Discipline, Peter M. Senge categorized Àve attitudes that followers may have toward a leader·s direction: z Apathy—neither for nor against the direction, no interest or energy and does what requires the least effort or discomfort z Noncompliance—does not see the EeneÀts of the direction and will not do what is expected z Grudging Compliance—does not see the EeneÀts of the direction, Eut fears the consequences of not

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following it, does the minimum necessary and voices disapproval along the way and may act maliciously Ey following the letter, Eut not the spirit of the law z Genuine Compliance—sees the EeneÀts of the direction and does everything expected and more z Commitment—wants it, feels an ownership in the result and will make it happen.2 The movie, The Bridge on the River Kwai, provides a graphic portrayal of a group of people going through a transition from apathy to commitment. THE BRIDGE ON THE RIVER KWAI

The commandant of a Japanese prisoner-of-war camp holding American and British soldiers during World War II is responsible for constructing a bridge over the river Kwai, using the prisoners as laborers. In one of the Àrst scenes, prisoners are shown in sick bay faking illnesses to avoid work, followed by a scene where other workers are sabotaging the work effort on the bridge site by “accidentally” pulling over new sections of the bridge under construction, collapsing them into the river. The prisoners’ attitudes clearly range from apathy to grudging compliance to malicious non-compliance. However, a new detachment of British prisoners are brought to the camp. The British Colonel leading this detachment refuses to follow an order by the camp commandant, because the order violates the Geneva Convention. The Commandant places the Colonel and his fellow ofÀcers in an “oven,” a small metal enclosure exposed to full tropical sunlight, until he agrees to comply. While they are in there, the rest of the prisoners are now even less compliant, and the

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bridge construction falls signiÀcantly behind schedule. After a number of days and no indication that the Colonel will break, the Commandant frees the ofÀcers and agrees that they need not work but can supervise their men. Having won a battle of wills by his noncompliance, the Colonel now sees the building of a “proper bridge” as a way to maintain discipline and build morale among his troops. He enlists his fellow ofÀcers and then the rest of the troops to support this vision. As the movie progresses, we see a shift in the behavior of the prisoners from those of avoiding or sabotaging work, to grudgingly doing it, to full commitment. To complete the bridge on time both ofÀcers and sick bay inhabitants eventually work alongside the other men. When the bridge is Ànally completed on time, the prisoners hold a celebration party. The realization that they willfully helped the enemy’s war effort, if not completely forgotten, was at least sufÀciently rationalized. As this movie indicates, attitudes toward a particular direction can vary widely and can change over time. Followers can hold any of these attitudes regardless of whether leaders are face-to-face or distant or whether they have hierarchical power or not.

WHO LEADS/WHO FOLLOWS—A NEW VIEW As previously mentioned, the traditional view of who leads is Eased upon position or rank. “Who leads” is Àxed as long as the formal leadership hierarchy remains intact. The new view of who leads is Eased upon a range of factors including not only position or rank, Eut also knowledge, skills and capacity. With this new view, the person who leads is the one Eest aEle to lead in a particular situation. Since

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virtually all of us at times “act to inÁuence others to follow a particular direction”³our deÀnition of leadership³it follows that everyone is a leader. Similarly, since we are all inÁuenced at times Ey others to follow a direction, it further follows that everyone is a follower. For example, even though we may have rank over another party, to the extent that we so much as listen to them, and Ey doing so form a new opinion, we are acting as followers. We can summarize these two views as follows: TRADITIONAL VIEW leaders lead followers follow

NEW VIEW everyone a leader everyone a follower

The transition from the traditional view to the new view of everyone a leader and everyone a follower, although simple in concept, is profound in its implications. Important characteristics are as follows: LEADERS:

z retain their hierarchical power z when delegating, relinquish “power as control” to expand “power as capacity” z must Ee willing to Ee challenged and accept the possiEility that they might Ee wrong z must Ee willing to follow. FOLLOWERS:

z must have the courage to challenge leaders z have a duty to oEey leaders when doing so is not morally undermining or repugnant

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z have a duty to disoEey leaders when their Eehaviors are reprehensiEle z must Ee willing to leave the organization. BOTH LEADERS AND FOLLOWERS:

z are servants to the organization·s purpose and values z hold themselves responsiEle and accountaEle for their Eehaviors z do not assume that they or other parties are automatically “right” or “know the truth” z don·t inherently see others in a one-down or one-up position z think through the merits of decisions rather than make them for self-focused or Eureaucratic reasons. It is important to again state what everyone a leader and everyone a follower does not mean. It does not mean that everyone has equal leadership capaEilities, nor does it mean the aEsence of a formal hierarchy of power or that the leadership role in a particular situation is up for graEs. With this orientation, those with greater leadership skills do tend to Ee higher up in the hierarchy, and hierarchical leaders do retain formal power over followers. What this orientation does mean is that leaders, even those at the top of organizations, see themselves as personally responsiEle and therefore accountaEle to a higher authority, whether that Ee the organization·s purpose, its value system or to their own consciences. Even though leaders have power over others, they see themselves as having a choice as to whether and how to share that power with followers. Sharing their power may lead to their Eecoming followers in particular situations.

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With this orientation, followers also see themselves as having a choice³whether to follow and in what manner to follow. In his Eook, The Courageous Follower, Ira Chaleff stated that followers, like leaders, hold themselves personally responsiEle for their actions. They are prepared to challenge, question and offer suggestions. They do so without undermining the formal authority of their leaders to lead or relieving themselves of their responsiEility to follow. While they respect the authority of their leaders, they do not Elindly fall in step. Rather, they hold themselves accountaEle to the higher authority of the organization·s purpose and values and their own sense of right and wrong, and they are prepared to disoEey if they are asked to act in violation of this higher authority. The orientation of everyone a leader and everyone a follower recognizes that organizations do and must have a chain of command that estaElishes hierarchical power. This orientation does not alter these relationships, Eut it does call upon the organization·s formal leaders to Ee willing to forego their hierarchical power as they approach each situation. For example, a supervisor might ask a suEordinate to unknowingly take an action that would Ee detrimental to the organization. In this case, the suEordinate would challenge the supervisor·s request, and the supervisor would defer to the suEordinate upon concluding that this individual was more knowledgeaEle. By adopting this orientation, organizations place a greater emphasis on power as capacity to accomplish the entities· vision and act according to its values rather than upon power as control to reinforce its estaElished leadership hierarchy. In the previous example, the supervisor and the suEordinate each see themselves as followers of the organization·s purpose, with Eoth suEordinating themselves to the organization·s vision and values. Although Eoth parties are prepared

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to take either role, they Eoth know that if there is a question aEout what action is in the Eest interests of the organization that the hierarchical leader has Ànal authority. It is critical to the formation of exceptional organizations that the everyone-a-leader and everyone-a-follower orientation Ee adopted, either explicitly or implicitly. Most people prefer working in this orientation. Those that do not, often select to leave the organization. Servant leadership is critical to the creation of an everyone-a-leader and everyone-a-follower orientation. Self-focused leadership and servant leadership are two ends of the same spectrum. Many people have the potential to move up the spectrum toward a greater degree of servant leadership. 2thers, however, are too egocentric to ever serve a cause greater than their own self-interests. They are unwilling to consider their falliEility, intolerant of Eeing challenged and unaEle to think of their suEordinates in any way other than in a one-down relationship. To create this new orientation, organizations cannot retain such individuals³particularly those higher up in the organization·s hierarchy.

IMPLICATIONS FOR LEADERS The following points are relevant. z The presence of servant leadership, and the aEsence of self-focused leadership, is critical to the organizing principles “Inspiration” and “Right Person / Right -oE,”³Eoth key elements of exceptional organizations. z The everyone-a-leader and everyone-a-follower orientation meets the needs of people to Ee led, to make a contriEution and to Ee respected. z Leaders must Àrst adopt the characteristics of this orientation Eefore expecting others to emErace it.

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z This orientation increases the quality of decisionmaking, develops the skills of Eoth leaders and followers throughout the organization and inspires followers to greater commitment. z This every-one-a-leader and every-one-a-follower orientation is an essential aspect of cultures that foster exceptional organizations.

SUMMARY Leaders pursue a direction and inÁuence others to follow. In doing so, they use Eoth power as control and power as capacity. The proper motivation for the use of power is servant leadership, where leaders serve a cause greater than their own self-interests. Followers want to Ee led, to make a contriEution and to Ee respected. The leader·s Eehavior will impact the follower·s attitude toward a particular direction. The traditional view is that leaders lead and followers follow. The new view is everyone a leader and everyone a follower. This orientation EeneÀts not only organizational effectiveness Eut also the personal growth and development of the entity·s memEers. It is a key cultural element of exceptional organizations. FUTURE STUDY

z Think aEout people who have had hierarchical authority over you. Where would you place them on a spectrum ranging from self-focused to servant leadership? z Examine past situations where you have Eeen a follower. What factors determined what role you played and your attitude toward the leader·s direction?

Leaders and Followers

RELATED CHAPTERS

z Essays:

The Servant as Leader: 65 Everyone a Leader: 73 A Bad Plan Poorly Executed: 110

z Lesson:

Leadership Styles for Decision Making: 174

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LEADERSHIP STYLES FOR DECISION-MAKING This lesson provides an understanding of a range of leadership styles for decision-making. It descriEes the factors leaders can use to determine which styles are most appropriate for particular situations. It indicates who should Ee involved in making a decision and descriEes the importance of this tool for creating exceptional organizations.

BACKGROUND This lesson is an adaptation of principles included in a 1958 Harvard Business Review article, “How to Choose a Leadership Pattern,” written Ey RoEert TannenEaum and Warren Schmidt.

A QUESTION Ask yourself if one of the following two leadership styles is Eetter than the other. z “I put most proElems into my team·s hands and leave it to them to carry the Eall from there.” z “I Eelieve in getting things done. Someone has to call the shots around here, and I think it should Ee me.” This lesson will help answer this question.

LEADERSHIP STYLES We can summarize leadership styles into Àve categories: 174

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z Mutual³leader allows the group to reach whatever decision it chooses within limits z Consult³leader receives inputs, makes the Ànal decision z Test³leader presents tentative decision suEMect to change z Sell³leader sells decision already made z Tell³leader announces decision already made. We can give an example of the Àve leadership styles in the planning of a picnic where the leader, who has decisionmaking authority, addresses suEordinates as follows: PLANNING A PICNIC

Mutual

“Please plan our annual picnic. Set a time and place. Your only constraints are that it must take place within 10 miles of our location and Ee held some time in -uly.”

Consult

“I would like your suggestions on when and where to have our picnic, and I will then make a decision.”

Test

“What do you think of having our picnic at ClearErook Park, on Saturday, -uly 15th?”

Sell

“We will have our picnic at ClearErook Park on Saturday, -uly 15th Eecause everyone liked going there last year.”

Tell

“We will have our picnic at ClearErook Park on Saturday, -uly 15th.”

Take a moment and ask yourself which of these Àve leadership patterns you are most comfortaEle with. Now, con-

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sider which style you use most frequently when you are in a leadership role. People most frequently use the style they are most comfortaEle with.

FACTORS IN CHOOSING A LEADERSHIP STYLE Is any one style Eetter than any other? Depending upon the circumstances, one style may Ee appropriate while another may not. There are many factors to consider in choosing an appropriate leadership style. Key ones are as follows. z Time—It takes time to involve followers in a decision. If time is critical, the leader may need to act quickly and unilaterally. z Knowledge and skill level of followers—For followers to make a meaningful contriEution toward a direction or decision, they must have knowledge and skills appropriate to the decision Eeing made. In many instances, followers have unique knowledge that the leader does not have, making their input critical to choosing a proper direction. z Who is impacted by the decision—If the decision impacts the followers more so than the leader or others outside the group, then more involvement Ey followers may Ee appropriate. The more the followers are impacted the more likely they will have relevant information for any decision. However, if the decision has a maMor impact outside the group, then the leader might want to maintain more control over the decision. z Degree of commitment required—If it is necessary for followers to have a sense of commitment, rather than mere compliance for the direction chosen, it may Ee appropriate to give followers more involvement in the decision-making process.

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z Leaders· willingness to be inÁuenced—If leaders are unwilling to Ee inÁuenced Ey the group regardless of their input, seeking their involvement wastes everyone·s time. There are times when leaders Eelieve so strongly in a direction that no issues raised Ey followers will cause them to change course. While there is no one “Eest” leadership style that is universally applicaEle, one style may Ee more applicaEle than another given a particular set of circumstances. Effective leadership for decision-making requires Àrst, the aEility to choose the most appropriate style and second, the aEility to competently use that style. While leaders may naturally prefer one style over another, it is important that they can play all the keys on the piano from “tell” to “mutual.” When leaders do use the appropriate style for the situation, followers are more likely to support the direction. When leaders are in the “tell” mode, followers can Ee committed to the direction if they Eelieve that particular decision-making style is what the situation calls for. 2n the other hand, if a leader attempted to use a mutual pattern in the face of an emergency, it would immediately frustrate and alarm followers. While leaders and followers are most effective when leaders use the appropriate style, they are least effective when leaders give the appearance of Eeing in one style Eut are actually in another. Leaders who ask for input from followers Eut in reality have already made up their minds on a direction, will diminish any feelings of trust on the part of these followers. Unfortunately, leaders may not Ee aware of their own Eehaviors. At a conscious level, they may think they are seeking input when in reality they are not. Because most organizations have no language for descriEing leadership patterns, it is easy for such circumstances to arise. When leaders and followers learn aEout leadership styles, every-

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one develops a conscious awareness of the technique, and the likelihood of a misunderstanding is diminished. When American Woodmark·s senior leadership team was Àrst exposed to the concept of the Àve leadership styles, I had assumed that I acted mostly in a consulting or mutual mode. I was surprised to learn that my team·s perception was that I more often feigned acting in these modes Eut was actually in a sell mode Eecause my mind was already made up. From that time forward, I was more conscious of the style I was in and attempted to Eetter proMect that style to others. It is important to note that while the immediate circumstances will dictate the most appropriate leadership style, the leader has a strong inÁuence over what these circumstances will Ee. Some leaders will never allow their followers to gain enough knowledge and skill to participate in a decision, while others will continually strive to help followers develop and grow. Those leaders who do will create an environment which fosters increased capaEilities, freedom and responsiEility on the part of their followers. ExhiEit 26.1 shows that as we create circumstances which allow us to move from tell to mutual as the most appropriate style, we reduce the use of authority used Ey leaders and increase freedom for followers. By doing so, followers will more likely Ee committed to achieving the organization·s purpose.

WHO NEEDS TO BE INVOLVED? A factor in choosing the appropriate leadership style is the leader·s understanding of who needs to Ee involved and how they might impact or Ee impacted Ey the decision. There are four categories of people to consider: z Decision-makers³those whose input is required to actually make the decision

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z Technical experts³those who aren·t directly involved in making the decision, Eut whose expertise is needed Ey the decision-makers z People who need to be informed³those whom will Ee impacted Ey the decision Eut will not have a voice in making it z Any person who has veto power—those not directly involved in making a decision Eut who have veto power. Very often, there is confusion aEout the roles of each party to a decision. By clarifying roles, the decision process will Ee more effective and efÀcient.

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IMPLICATIONS FOR LEADERS Key points are as follows. z Typically, leaders are unaware of the leadership patterns they use in making decisions. z By Eecoming aware of their patterns, leaders can increase their skill in using the most appropriate styles in particular circumstances. z Better use of leadership patterns leads to Eetter decision-making and a greater commitment on the part of all involved. z By enaEling followers to increase their knowledge and skills, leaders create an environment that allows followers to more fully participate in the decision-making process³to the EeneÀt of the organization and their own growth and development. z By making everyone in the organization aware of this decision-making process, collective learning of this methodology is signiÀcantly enhanced. z The use of this process is a key tool supporting the creation of exceptional organizations.

SUMMARY There are Àve leadership styles: tell, sell, test, consult and mutual. Decisions are Eest made when leaders choose the most appropriate leadership style for the particular situation. Decisions are less effective when leaders choose an inappropriate style. 2ver time, leaders can affect the circumstances surrounding decisions leading to greater freedom for followers and thus a higher level of commitment. The effective use of leadership styles for decisionmaking is a key Euilding Elock in the formation of exceptional organizations.

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FUTURE STUDY

z Prioritize the Àve leadership styles according to how often you employ them. Then, position the Àve styles according to your comfort using them. Note whether there is a relationship Eetween the styles you use and your comfort level. z Before you Eegin a decision-making process, consciously note which leadership style you think would Eest Ee used and then use this style, even if you are not initially comfortaEle with it. After making the decision, review how well you used it. z If you are learning these skills as part of a group effort, post the leadership style continuum on the wall during decision-making deliEerations. At the end of the session, review the effectiveness of the leadership styles used. RELATED CHAPTERS

z Essays:

Everyone a Leader: 73 A Bad Plan Poorly Executed: 110

z Lesson:

Leaders and Followers: 158

Section 3.3

PROCESSES AND TOOLS This section presents six lessons that descriEe speciÀc techniques that an organization can adopt in the pursuit of Eecoming exceptional. The Àrst, “The 7-Step Process,” offers a universal tool for doing work applicaEle to most any situation. The second, “Meeting Management,” provides a format and instructions for conducting effective and efÀcient meetings. The third, “Understanding Discourse,” highlights the distinction Eetween two types of discourse, discussion and dialogue, and when each is appropriate. The fourth, “Mental Models,” shows the power of our internal pictures of how the world works and how we can Eecome more aware of these pictures and hold them up to scrutiny. The Àfth, “Human Motivation,” descriEes the nature of human Eehavior and how leaders can Ee sensitive to what motivates followers. Finally, “Working in Teams,” shows the importance of highly effective teams in the creation of exceptional organizations.

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THE 7-STEP PROCESS This lesson presents the 7-Step Process as a method for individuals and organizations to create the results they truly desire. It descriEes the universality of the tool and its power in application.

BACKGROUND As previously mentioned, RoEert Fritz, a music composer Ey training, studied how people in the arts actually created their works. What he found was that regardless of the discipline³songwriting, sculpture or painting for example³creators consistently followed the same process. He also found that while they were aEle to effectively use this creative process in their professional endeavors, they typically did not apply this approach to other aspects of their lives. Fritz discovered that the creative process was in fact applicaEle far Eeyond an artist·s speciÀc discipline and, furthermore, that it could Ee learned. In his Eook, The Path of Least Resistance, he descriEes how to apply the creative orientation to all aspects of an individual·s life. The 7-Step Process is an adaptation of Fritz·s description of the creative process conÀgured in a format more applicaEle to organizations.

METHODOLOGY The process is as follows: 183

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THE 7-STEP PROCESS

1. Create a Vision

Clearly picture the results you desire.

2. Understand Current Reality

Know where you are today.

3. Take Action

Act in a way that moves you from your current reality toward your vision.

4. Measure Performance

Track your progress.

5. Modify Actions

Change your Eehavior when necessary to get Eack on track.

6. Achieve Results

Accomplish your results Ey making your vision your new reality.

7. Create a New Vision

Clearly picture a new result you desire.

The power of the 7-Step Process comes from structural tension, what Fritz characterizes as an impetus for human action. Structural tension is caused Ey the discrepancy Eetween what we want³our desired result³and what we have³our current reality. When we picture Eoth the vision and the current reality at the same time, the tension created impels us to take appropriate action to resolve the tension. ExhiEit 27.1 shows these relationships. 2nce actions are initiated, we can measure performance relative to expected progress toward our vision, and we can modify our actions as necessary until we achieve our desired result. At this point, we can create a new vision. Think of a child learning to ride a Eicycle. The child·s vision is to have the aEility to ride, Eut the current reality is

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an inaEility to do so. The resulting discrepancy leads to tension which leads to action³practicing how to ride Ey Ealancing, pedaling, steering and Eraking. Unfortunately, the child makes many false steps along the way³falling over and crashing³until Ey continually modifying his or her actions the skill is eventually learned, and the vision is achieved. 2nce the tension is resolved, the child creates a new vision, such as riding the Eike to school.

Since the act of learning to ride a Eicycle seems natural and intuitive, we are typically not aware of the process Ey which we do it. The 7-Step Process, however, makes users conscious of this natural process and thereEy enaEles them to apply this technique to a variety of situations. ExhiEit 27.2 shows a schematic representation of this process.

THE UNIQUENESS OF THIS TOOL There are a multitude of management tools that start with the creation of a vision and then go on to develop action steps in one manner or another to achieve it. What these techniques fail to include, however, is any mention of current reality as part of the process. By so doing, they make it much

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more difÀcult to create structural tension and thus the impetus to act. Furthermore, the action steps taken may Ee either inadequate or inappropriate. To Eook a Áight to Chicago, it is important to know that your starting point is Atlanta, not Los Angeles.

While many tools start with a vision and ignore current reality, others do Must the opposite. They focus on current reality and never consider what is truly desired. Current reality is typically descriEed as a proElem and the solution is to make the proElem go away. While we frequently do want to see proElems go away, focusing our energy on the

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proElem simply ignores the possiEility that what we often want is something entirely different. For example, a product may have a quality defect, and under a proElem-solving approach we would go aEout Àxing the defect. What we may really want, however, is an entirely new product to replace the existing one, making the Àxing of the proElem irrelevant. Finally, not articulating a vision impedes the creation of structural tension Eetween our vision and current reality. Another unique aspect of the 7-Step Process is that it turns upside down the way we traditionally allocate time to do work. When faced with a situation, we traditionally spend the maMority of our time considering alternative action steps. It is only when those actions are not oEvious that we go Eack, Eut not explicitly, to reconsider what we want and our current status. It may Ee considered macho to have “a Eias toward action,” as some authors articulate, Eut all too frequently it leads to extensively modifying actions when the Àrst ones fail. With the 7-Step Process, practitioners spend most of their time creating the vision and understanding current reality. 2nce this is done, the action steps Eecome relatively oEvious. Furthermore, there is less time needed to modify actions to achieve results.

CHECKLISTS FOR EACH STEP The following outlines are checklists to help guide each step. CREATE A VISION

z Slow down your thinking. z Ask, “What do I want?” z Disregard others· expectations.

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z Disregard “what is possiEle.” z Start with a Elank page. z Form a picture. z Clarify the picture. z Let your vision come alive. z Break down extremely amEitious visions into a series of more manageaEle suE-visions. z Hold your vision. z Gain team agreement as appropriate. UNDERSTAND CURRENT REALITY

z Slow down your thinking. z Ask, “What is the relevant data?” z Be aware of your Eiases. z Separate fact from opinion. z Picture patterns within the data. z Understand how the key elements interrelate. z Seek the truth, don·t “know it.” z Gain team agreement as appropriate. TAKE ACTION

z Generate possiEle actions. z Decide on actions to take. z Ask, “Do these actions address all of the discrepancies Eetween current reality and the vision?”

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z Prioritize the actions. z Set dates for completion. z Assign responsiEility for achievement. z Ask, “If we take these actions successfully, are we likely to achieve our vision?” MEASURE PERFORMANCE

z Track whether action steps are successfully completed on time. z Measure progress relative to milestones that lead toward the achievement of the desired result. MODIFY ACTIONS

z Take new initiatives to complete action steps that are Eehind schedule. z Reprioritize steps as necessary to compensate for uncompleted actions. z If milestones are not achieved on time, even though action steps are on track, then re-evaluate your plan and add additional action steps as appropriate. ACHIEVE RESULTS

z Don·t confuse completing all action steps with achieving the desired result. z Measure achievement Ey asking, “Is the vision now the reality?” CREATE A NEW VISION

z With the vision achieved, the original structural tension is dissipated, and new desired outcomes will come forward for consideration.

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APPLYING THE 7-STEP PROCESS INDIVIDUAL TASKS: The simplest application of the 7Step Process is for addressing tasks that can Ee completed Ey users on their own. These tasks can Ee either work-related or relevant to users· personal lives. A Personal Action Plan is a form for use on such proMects. An example of a completed form is included in ExhiEit 27.3.

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The following story was told Ey Brian Allen of ProMect H2PE and shows one person·s application of this process. LOOKING FOR A HUSBAND

Last year I trained members of our staff in Malawi, Africa on the use of the 7-Step Process. At the end of the session, I asked each of them to pair up with a coworker and share their Personal Action Plans. As I walked around the room listening to the conversations and assisting when needed, I heard one young lady talking about looking for a husband. I walked over to that table and asked if I had heard correctly. She said that I had. I commented that this was the Àrst time I had actually heard anyone use the 7-Step Process to manage their search for a spouse. She was very quick to correct me saying that her search for a husband was not her vision but one of her action steps. This led me to wonder what her vision was. I quickly thought that her vision must then be to have children. I asked if that was the case. “Oh no,” she replied, “My vision is to have a car. If I have a husband he will buy me a car.” We discussed this in the context of the 7-Step Process, and although I may have questioned the wisdom of her vision, she was following the process properly. That following weekend I was still in country. On Sunday, after church services, I went to a local pizza parlor. I sat at a table that provided me with a vantage point to observe people entering the establishment. As I ate my pizza, who should walk in but this particular young lady, accompanied by a tall slender young man. The couple did not notice me. They ordered their food and sat outside under a parasol. They seemed to be infatuated with each other. As I left I walked by their table. Surprised, she took note that

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it was me and greeted me. I greeted her, and as she looked at me I nodded over to the young man, leaned down and asked her in a whisper if he was part of her action plan. Embarrassed, she quickly began shaking her head and said over and over, “Oh, no.” The young man seemingly had no idea as to what I was referring. Due to her reaction I dropped the subject, bid farewell, and wished them a good day. When I returned to Malawi, I found that this young lady was no longer with Project HOPE. Her partner for the 7-Step Process exercise, however, was still there and informed me that the young lady was coming by the ofÀce to visit me. When she arrived she proudly informed me that she was now married and now had a car. Her husband was in fact the young man from the pizza parlor. TEAM TASKS: The EeneÀts of the 7-Step Process and the value of creating structural tension Eecome apparent when the process is applied to team tasks. There is an immediate focus upon what the team wants to create, and any discrepancies in what people think the vision should Ee can Ee highlighted and discussed until a shared sense of purpose evolves. It is useful to record this vision on a Áip-chart page for everyone to see. Similarly, the key elements of current reality can Ee recorded and placed on a page adMacent to the one summarizing the vision. 2nly after there is agreement on Eoth the vision and the current reality should the team consider possiEle action steps. As indicated earlier, these tend to Ee quickly apparent as the discrepancy Eetween the vision and current reality Eecomes clear. The team can estaElish due-dates and assign responsiEilities for achieving each action and then set appropriate milestones for keeping the proMect on track until the desired results are achieved.

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AMERICAN WOODMARK’S EXPERIENCE As previously mentioned, American Woodmark introduced the 7-Step Process as part of its 1995 Vision. The process was soon the primary method for doing work throughout the organization. 2ver time, it Eecame the organizing principle for various other processes, such as scorecard development, individual and departmental performance-planning and appraisal, strategic planning and the creation of the company·s six-year visions.

KEY ATTRIBUTES The 7-Step Process is easy to learn, simple to use and powerful in application. Even for those Must learning the process, it will likely deliver desired results more readily than those produced Ey proÀcient users of other methodologies. Mastery of the 7-Step Process, however, is a lifelong effort requiring practice, discipline and focus. But with this mastery comes an enhanced aEility for individuals and organizations to create what they want. IMPLICATIONS FOR LEADERS

Key points are as follows. z Because of the universality of the tool and its effectiveness, the 7-Step Process can Ee used as the primary way for an organization to do work. z As more people learn the process, the organization·s collective skill level in its use increases dramatically, leading to even greater results. z 2ther processes³employee orientation, training programs, performance planning and evaluations, strategy creation and Eudgeting, among others³can Ee developed utilizing the 7-Step Process.

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z By utilizing this tool to help create a range of the organization·s processes, this tool Eecomes a critical Euilding Elock of the organization·s culture.

SUMMARY The 7-Step Process is a method for individuals and teams to create the results they truly desire. Since it is applicaEle to most any situation, it is of particular use as a primary tool for organizing work and getting things done. It is easy to learn, simple to use, powerful in application, Eut takes a lifetime to master. It can Eecome a critical element in the creation of exceptional organizations. FUTURE STUDY

z Utilize the Personal Action Plan to address situations which you can complete on your own. These can Ee either personal or work-related. z Team with a partner who is also Euilding skills with this process. Each of you can act as a consultant to the other. When acting as the consultant, use clarifying questions to test the adequacy of each step. z If you are a team leader, use the 7-Step Process to address an organizational issue. You can do this even though no one else is familiar with the technique. z In situations where a team is working together to Euild skills, designate one individual to act in a consulting role to test the adequacy of each step of the process.

The 7-Step Process

RELATED CHAPTERS

z Essay:

“What Do I Want?”: 78

z Lessons: Human Motivation: 225 Working in Alignment: 244

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MEETING MANAGEMENT This lesson presents a standard format to conduct effective and efÀcient meetings. It descriEes materials needed, the creation of a visual record, ground rules and desired results.

STANDARD MEETING FORMAT How would you characterize the meetings that you attend? Most participants are frustrated Ey the experience. The cartoon in ExhiEit 28.1 exempliÀes this frustration. A standard format will foster effective and efÀcient meetings.

STANDARD MEETING FORMAT z IceEreaker z Review Agenda z Set Expectations z Content z Next Step z Review Expectations z FeedEack

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Each element is critical to the creation of a successful meeting. ICEBREAKER: The purpose of the iceEreaker is to Ereak the ice, to get everyone to relate to each other and to participate immediately in the meeting. IceEreakers should Ee fun and should reduce tension, not add to it. The length of the iceEreaker should Ee proportional to the length of the meeting. A one hour meeting should have no more than a two to three minute iceEreaker, whereas a Àve-day meeting may have up to an hour. REVIEW AGENDA: By reviewing the agenda, participants gain consensus aEout the purpose, focus and Áow of the meeting. Agenda topics can Ee clariÀed and items can Ee either added to or eliminated from the agenda as appropriate.

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SET EXPECTATIONS: Clarifying the participants· expected results of the meeting will further deÀne its focus and Áow and estaElish what must Ee accomplished for it to Ee successful. Expectations which are Eeyond the scope of the meeting can Ee identiÀed at the start of the meeting, thereEy reducing participant frustration later on. CONTENT: The working purpose of the meeting is addressed in the sequence of the topics listed in the contents of the agenda. It is critical that meeting participants stay focused and not get diverted with suEMects Eeyond the scope of the meeting. NEXT STEP: It is important to determine the logical next step following this meeting. It may Ee a future meeting to follow up on agreed to actions, to estaElish additional action steps, or to create a new desired outcome. There may Ee no next step if the meeting·s purpose has Eeen achieved. REVIEW EXPECTATIONS: By reviewing expectations at the end of the meeting, there is a recognition as to whether or not the participants· expectations have Eeen successfully met. 2ften, if they have not, they can Ee addressed at this time. FEEDBACK: The purpose of this segment is to learn how to improve future meetings, to enhance interaction among participants, to express emotions which have not previously surfaced during the meeting, to provide positive feedEack and to provide constructive feedEack appropriate to the group as a whole. Be sensitive to people who may view group feedEack as threatening or counterproductive. It may Ee necessary for a group to share only positive feedEack for several meetings Eefore it is ready for constructive feedEack. Discuss any concerns with the group prior to Eeginning the feedEack segment. Give feedEack that is critical of speciÀc individual Eehavior on a one-on-one Easis after the conclusion of the meeting.

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MATERIALS NEEDED The following general materials are needed, plus any other items unique to the meeting: z agenda issued to participants in advance as appropriate, along with any preparation materials z Áip charts, markers and tape. VISUAL RECORD: Recording information visually has several advantages. It helps to organize the Áow of the meeting, it is a way to help create and capture common understanding and, it creates a record of the meeting which can then Eecome the minutes. z Prior to meeting, put the agenda on a Áip-chart page. z Record expectations, decisions made, action steps, unresolved issues, feedEack and all other key information on Áip-chart pages. GROUND RULES: The following ground rules are applicaEle to all meetings: z team logistics ¶ arrive on time ¶ start on time ¶ end on time, unless the group formally agrees to extend the meeting

z conduct during the meeting ¶ Ee respectful ¶ Ee open and honest this will require trust which cannot Ee mandated, Eut which must Ee developed over time ¶ confront issues not people

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¶ one person speaks at a time

z decision-making ¶ clarify how decisions will Ee made and whom outside the meeting may Ee needed for approval

z action steps ¶ record actions to Ee taken along with the name of the person responsiEle for their achievement and a due-date for completion

z issues ¶ catalogue unresolved issues on an “Issues” page³ Ey so doing, the meeting can continue to progress while the issue is captured for future consideration

z conduct outside the meeting ¶ maintain any of the team·s agreed to conÀdences ¶ represent the team properly in words, action and attitude.

ROLES: The following roles are necessary: z meeting leader ¶ arranges meeting room ¶ estaElishes agenda ¶ invites appropriate participants ¶ keeps the meeting on task

z scriEe ¶ records notes preferaEly on a Áip-chart page for all to see ¶ translates notes into short form minutes ¶ distriEutes minutes

z facilitative monitor ¶ assists leader with keeping on task

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¶ reminds group when ground rules are Eroken.

FOLLOW UP: As soon as reasonaEle after the meeting, send a typed version of the information recorded on the Áip chart pages as minutes to meeting participants. DESIRED RESULTS

A successful meeting: z starts and ends on time or earlier z achieves the purpose of the meeting z concludes with a common understanding of meeting results and assignments z achieves the agreed upon expectations of the participants z is efÀcient³time is well utilized z provides for mutual support and respect among participants z creates participant ownership in results z increases the level of trust among participants.

INFORMAL MEETINGS The principles of the standard meeting format can Ee applied to frame one-on-one in-person and phone conversations. A quick iceEreaker is usually appropriate, if it is no more than a discussion of the weather. The agenda and expectations can Ee conÀrmed Ey estaElishing, “What do we want to accomplish?” The content and next step can then Ee addressed. Finally, feedEack can Ee ascertained Ey asking, “Have we covered all the issues?” and “How do you feel aEout our result?”

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AMERICAN WOODMARK’S EXPERIENCE EstaElishing a rule that all organization meetings would follow the meeting-management process was the most visiEle Àrst step in American Woodmark·s cultural-change effort. Meetings were more productive, everyone was learning a new common language and people could see concrete changes for the Eetter.

IMPLICATIONS FOR LEADERS Key points are as follows: z Meeting Management is a highly effective tool which can Ee easily learned and applied. z For organizations that have ineffective meeting management skills, its application can generate quick EeneÀts for limited costs. z Because of these factors, it can Ee a very effective initial step in changing an organization·s culture.

SUMMARY The standard meeting format consists of the following elements: iceEreaker, review agenda, set expectations, content, next step, review expectations and feedEack. By following the format, not only will the meeting Ee effective and efÀcient, Eut participants who use this process regularly will likely have greater respect and trust in each other over time. Meeting Management is a key process supporting the culture of exceptional organizations. FUTURE STUDY

z Use this standard meeting format to conduct formal meetings that you lead. Meeting participants do not need to Ee familiar with the format for the process to Ee effective.

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z Use the tool informally to frame one-on-one in-person or phone conversations. RELATED CHAPTER

z Essay:

The Much Maligned Meeting: 82

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UNDERSTANDING DISCOURSE This lesson presents an understanding of two types of discourse³discussion and dialogue. It highlights the purpose, methodology and expected results of each.

BACKGROUND This material is Eased in part upon the work of Peter M. Senge in his Eook, The Fifth Discipline. Senge in turn has drawn upon his conversations with David Bohm and from Bohm·s writings to address these concepts.

DISCOURSE People in organizations spend a consideraEle amount of time in conversations or discourse. An organization·s success often depends upon the quality of these interactions. Traditionally, however, organizations are not conscious of how they converse, or even that there are two categories of discourse of EeneÀt³discussion and dialogue.

DISCUSSION Webster Dictionary deÀnes discussion as “a consideration of a question in open and usually informal deEate.” Its purpose is to present and defend different views. Participants advocate their positions, and together they evaluate alternative thoughts, reducing these alternatives until a common position is estaElished. The EeneÀt of discussion is that there is usually 204

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a useful analysis of a whole situation. Thoughts converge on a conclusion or course of action, and decisions are made. The proElem with discussion is that when parties advocate their own positions, it is difÀcult for them to Ee openminded enough to consider the merits of alternative positions. Frequently, decisions are made Eased upon who has formal power or Eetter skills of persuasion, rather than on what is Eest for the organization. Most organizations use discussion as virtually their only form of discourse. While it is appropriate when it is time to reach a decision, there are other situations, particularly where new insights are required, when discussion is inappropriate.

DIALOGUE An alternative to discussion is dialogue, which WeEster deÀnes as “an exchange of ideas and opinions.” Where the deÀnition of discussion incorporates the concept of debate, dialogue does not. The purpose of dialogue is to present individual views as a means to discover a new perspective not anticipated Ey any one party. Whereas discussion incorporates an element of competition and advocacy³that is one idea in opposition to another³dialogue encompasses cooperation, group learning and idea creation. Dialogue is particularly useful when the suEMect matter is complex. In The Fifth Discipline, Senge descriEes Bohm·s three conditions for conducting dialogue: assumptions are suspended, participants view each other as colleagues and a facilitator guides the discourse. z Assumptions are suspended—Participants are each aware of their assumptions and are willing to hold them up to scrutiny. When presented, these as-

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sumptions are neither defended nor advocated, Eut are suspended to see if a Eetter representation of reality is more appropriate to the situation. z Colleagues—Participants see each other as colleagues, where the inÁuence of hierarchy is eliminated. Initially, participants may experience a feeling of vulneraEility when they expose their assumptions to others. 2ver time, this feeling dissipates. The parties share a sense of playfulness with new ideas and develop friendships. z A facilitator—The purpose of having a facilitator is to hold the context of the dialogue and keep the group from the haEit of pulling towards discussion. Relatively few people have skills in dialogue, while all of us practice discussion every day. Therefore, while it is easy for us to advocate a position, it is very difÀcult for us to suspend our assumptions. First, we are often not aware of them, thinking that our positions are the truth rather than a representation of the truth; and second, we can easily revert Eack to defending our positions since it is our normal form of discourse. A facilitator limits this tendency. FACILITATING A DIALOGUE: There are different approaches to conducting a dialogue session. A format that is particularly useful for groups that are new to the process is as follows: FACILITATING AN INTRODUCTORY DIALOGUE SESSION

z Determine if dialogue is appropriate. Is the session·s purpose to address complex issues requiring greater collective understanding?

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z Designate a facilitator. z EstaElish a relaxed atmosphere, where no participants feel rushed. z If possiEle, arrange participants in a circle where there are no desks or taEles Eetween any two individuals. z Provide the following guidelines: ¶ one person speaks at a time ¶ a lapse of time is oEserved after each person speaks ¶ no one comments aEout another person·s remarks ¶ participants speak from their own perspective I think«, My assumption is«, My perspective is« ¶ people are given the opportunity to speak, going sequentially around the room ¶ no one is required to speak ¶ have a time frame for completion. z State the topic to Ee addressed. z Conduct the dialogue according to the estaElished guidelines. 2nce participants are familiar with the process, the formal rules outlined aEove can Ee relaxed. At times, particularly with groups that are familiar with dialogue, it may Ee appropriate for the group leader or facilitator to formally shift Eetween dialogue and discussion within the same session, depending upon the work necessary at any point in time. DESIRED RESULT: The primary result of an effective dialogue is that collective thoughts go Eeyond any one individu-

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al·s understanding, and participants learn together. People Eecome oEservers of their own assumptions, which they can then hold up to scrutiny. Participants tend to have a richer understanding of complex issues compared to their viewpoint when they entered the conversation. 2ver time, regular dialogue participants develop deep trust with one another. As mentioned in the case study, American Woodmark has used formal dialogue sessions as part of its Àve-day offsite leadership training since its inception in 1993. These sessions have Eeen of particular EeneÀt in helping participants gain a shared sense of purpose and meaning for their respective roles in the company, as well as a grounding in the values and historical roots of the enterprise.

IMPLICATIONS FOR LEADERS Key points are as follows. z Since organizations typically use discussion as their primary mode of conversation, leaders should make a conscious effort to consider when the use of dialogue may Ee more appropriate. z Dialogue is particularly useful, in conMunction with the 7-Step Process, in creating shared visions and a common understanding of reality. z Dialogue is also of EeneÀt in discovering mental models, as descriEed in the next chapter. z Understanding discourse³including how and when to use either discussion or dialogue³is an effective tool that is relatively easy to implement.

SUMMARY Both discussion and dialogue are EeneÀcial methods of dis-

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course. We can use discussion to defend positions and make decisions and dialogue to generate new views, create ideas and learn collectively. Effective leadership requires the Ealancing of discussion and dialogue, depending upon the purpose of the conversation. Understanding the appropriate methods of discourse supports the culture of exceptional organizations Ey enaEling its memEers to Eetter understand reality, develop new ideas and create more innovative visions. FUTURE STUDY

z Recall conversations you have had. To what degree were they either discussion or dialogue? Consider whether or not a different mode of conversation would have Eeen more appropriate. z Meet with a group that will EeneÀt from an interaction using dialogue. EstaElish a facilitator and follow the procedures descriEed in the example included in the text. RELATED CHAPTERS

z Essays:

“What Do I Want?”: 78 “Not Knowing is Your Friend”: 89

z Lessons: The 7-Step Process: 183 Mental Models: 210

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MENTAL MODELS This lesson provides an understanding of mental models: what they are, where they come from, why they are important and the nature of their power. It descriEes how we can hold our mental models up to scrutiny to adopt a new viewpoint.

BACKGROUND This lesson is Eased in part upon the work of Peter M. Senge in The Fifth Discipline.

THE NATURE OF MENTAL MODELS We can deÀne “mental models” as our internal pictures of how the world works. The creation of mental models is the natural way that we process, organize and give meaning to the data we receive through our senses. 2ur mental models are important Eecause they not only determine how we make sense of the world Eut also how we take action. For example, if we Eelieve that people are trustworthy, we act differently than if we Eelieve they are not. For the thirty year period prior to 2007, existing home prices in America rose every year on average over Àve percent per year. Looking at the world from this perspective, homeowners held the following mental model. z Housing prices rise each year. z Purchasing a home is a riskless investment. 210

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This mental model served homeowners well for a numEer of years. People Eorrowed heavily to purchase homes as nice as they could possiEly afford and were rewarded Ey appreciation in their values. But from their peak in 2007, home prices dropped in total more than 25 percent, and many who had signiÀcant Eorrowings on their homes suddenly found that their housing investments had Eecome net liaEilities after consideration of their deEt oEligations.1 As this example indicates, the quality of our mental models has a tremendous impact upon whether or not our actions will generate desired results.

THE LADDER OF INFERENCE Where do mental models come from? In The Fifth Discipline, Senge states that the process Ey which we create mental models is the ladder of inference. By inference, he means arriving at a conclusion Eased upon availaEle evidence. The ladder of inference symEolizes the process of creating mental models Ey reaching a series of conclusions. ExhiEit 30.1 shows each conclusion represented Ey a rung on the ladder. OBSERVABLE DATA: At the lowest rung is the full range of observable data. This represents all of the sensory information and experiences that come to us; everything we can see, hear, touch, smell and taste. We are continually exposed to huge amounts of information, Eut we are consciously aware of only a very small fraction of it. For example, as you read this lesson you are most likely unaware of all the Eackground sounds around you, whether they Ee voices of other people or the hum of a heating or air conditioning system. SELECTIVE ATTENTION: As we grow from infants to children to adults, we learn to attend to speciÀc data. This is usually information which has the potential to result in either a positive experience or the elimination of a negative one. Because we “select” what to attend to, this process is called selective attention, which is the second rung of the

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ladder. Selective attention allows a sleeping mother to hear her EaEy cry even though she sleeps through many louder sounds. It also enaEled home Euyers to attend to the fact that housing prices continued to rise.

ADDING MEANING: The third rung of the ladder is adding meaning. 2nce we have selectively attended to certain data, we add meaning to the information Eased upon our personal experiences and cultural understanding. The EaEy·s cry means that the EaEy is in distress. An increase in home prices in the past means that they will continued to rise in the future. The mother and the home Euyer Eoth draw upon prior experiences and lessons from our culture. The mother has experienced her EaEy·s cry in the past, and her cultural learning may have included conversations with other mothers. Home Euyers oEserved their friends· homes increase in value over time. All of these experiences and inputs help the mother and

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the home Euyer add meaning to the data they have selected. ADOPTING BELIEFS: The fourth rung is adopting beliefs, or drawing conclusions aEout the world. Based upon the meaning of what we learn, we generalize our understanding of the speciÀc situation to a Eelief covering a range of similar situations. The mother adopts the Eelief that “whenever my EaEy cries, she needs my help.” The home Euyer concludes that “home ownership is a riskless investment.” TAKING ACTION: The Àfth rung is taking action Eased upon one·s Eeliefs. When people use mental models to evaluate data and make decisions, they “leap” from oEservaEle data to action. This is called a leap of abstraction. The mother goes to her EaEy when she cries. Home Euyers Eorrow as much money as possiEle to acquire the most expensive home they can afford. ExhiEit 30.2 shows the ladder of inference for the mother and for home Euyers. ExhiEit 30.3 shows the canine version of the ladder of inference.

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THE PROBLEM WITH MENTAL MODELS Without the aEility to create and act upon mental models, it would Ee impossiEle for us to survive. 2ur development from infancy to adulthood entails the continuous learning of more and more mental models which enaEle us to live in this world. The proElem with mental models lies not in whether they are right or wrong. By their nature all mental models are simpliÀcations, so they can never Ee completely correct. ProElems arise primarily after the models are formed. 2nce we hold a mental model, we Eegin to think that our Eeliefs are the truth and that this truth is oEvious. We select data that supports this mental model and disregard other data. We Eelieve the data we select are the “real data” and that our Eeliefs are Eased on this real data. 2ur aEility to achieve results is often eroded Ey this thinking. Home Euyers did not say, “We have a mental model that housing prices will continue to rise.” They said, “Housing prices will continue to rise.” From their perspective, they knew the truth, and since they knew it, they saw no need to question its validity. They did not realize that they only held a mental model of reality.

DISCOVERING MENTAL MODELS If mental models are so difÀcult to unearth, how do we go aEout surfacing them? We can do so Ey holding them up to scrutiny. Senge descriEed three steps to surface, examine and if appropriate change the mental models we hold. These steps are the acts of reÁection, advocacy and inquiry. REFLECTION: Individual reÁection is a Àrst step to surface mental models. We can do so Ey:

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z Slowing down our thinking³When we do, we Eecome more aware that we may, in fact, hold a mental model of reality and not the truth aEout reality. z Asking, “Have we selectively attended to only the data that supports a previously held position?”³“Do we have other data availaEle that might further support or refute our conclusions?” z Asking, “Are the beliefs and conclusions reached appropriate for the data observed?”—“Are we willing to consider that our mental model is inaccurate?” “Have we suEstituted overly simple concepts for complex and disparate details?” “Are there alternative conclusions that might Ee more appropriate?” z Asking, “Are the conclusions reached testable?”³To test the adequacy of our mental models, can we examine different data from that upon which we made our conclusions?” ADVOCACY: A second step in surfacing mental models is to advocate our views to others Ey: z Making our reasoning explicit—“How did we arrive at our views?” “What is the data we selected, and what are the conclusions reached Eased upon this data?” z Encouraging others to explore our thinking— “Do they see gaps in our reasoning?” z Encourage others to provide different views— “Do they have different data, alternative conclusions or Eoth?” z Inquire if others have views different from our own—“What are their views?” “How did they arrive at them?”

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INQUIRY: The third method for surfacing mental models is to inquire aEout the mental models held Ey others. By doing so, we Eetter understand not only another·s position Eut also our own. We can do this Ey: z Being genuinely interested in the other’s response³“What are they thinking?” z Seeking to clearly understand the other’s views—“What are our assumptions aEout the other·s position?” z Asking about the “data” upon which their assumptions are based—“Do we see how their Eeliefs are supported Ey the data they present?” z Being willing to consider a position different from our own—“How reasonaEle is the other·s position?” “Are we willing to reevaluate our own mental models on the suEMect?” By practicing reÁection, advocacy and inquiry, we explore the limits of our thinking, accept the possiEility of Eeing wrong and emErace a willingness to change. By creating an ongoing orientation of holding our mental models up to scrutiny, we learn new ways of understanding the world and adapting our Eehavior.

PARADIGM SHIFTS A paradigm is another name for a mental model. A paradigm shift occurs when an individual or a group of people shift their thinking from holding one mental model aEout a speciÀc situation to emEracing a radically new picture of the world, one which Ey its nature is incompatiEle with the prior Eelief. As descriEed in his Eook, Books That Changed the World, RoEert B. Downes gives the example of one of the most important paradigms in the history of the world.

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Today, we all Eelieve that the earth and the other planets which make up our solar system rotate around the sun. Compared to the overall history of humankind, however, this understanding is a relatively new experience. People have forever watched the sun rise in the east and set in the west. From this oEservation, it was easy to conclude that the sun revolved around the earth. As mentioned previously, the work of one individual, Nicolaus Copernicus, dispelled this concept. The theory proposed Ey Copernicus was that the earth was indeed not stationary Eut rotated on an axis once daily and around the sun once each year. In 1543, he puElished his Àndings in his Eook entitled De Revolutionibus Orbium Celestrium Concerning the Revolutions of the Heavenly Spheres . Although Eoth the presentation of his arguments and the completeness of his supporting physical evidence were powerful, acceptance of the Copernican system was very slow, not only among the general population Eut also within the scientiÀc community. Most responses were strongly in opposition to the Copernican theories with the most vehement reactions coming from the religious community. The proElem with his theories was that, if held, they would upset the estaElished philosophical and religious Eeliefs of the time. No longer would humankind·s home on earth Ee the center of the universe. In 1615, the Catholic Church dismissed the Copernican model of the universe in the following statement: The Àrst proposition, that the sun is the center and does not revolve about the earth, is foolish, absurd, false in theology and heretical, because it is expressly contrary to Holy Scripture. The second proposition, that the earth revolves about the sun and is not the center is absurd, false in philosophy and from a theological point of view at least, opposed to the true faith. 2

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In 1616, the following year, the Church placed the writings of Copernicus on the Index, a listing of Eooks which church memEers were forEidden to read. A follower of Copernicus, the scientist Giordano Breno, was tried Eefore the Inquisition for Elasphemy, was condemned and Eurned at the stake. In 1633, the famous Italian astronomer, Galileo Galilei, threatened with torture and death Ey the Inquisition, was compelled on his knees to renounce his Eeliefs in the Copernican theories. He spent the rest of his life under house arrest. In spite of the vehement resistance, the Copernican system gradually gained acceptance over the two-hundred-year period following its introduction, as the work of Galileo, -ohn Kepler, Isaac Newton and many others Euilt upon Copernican theories. But not until 1835, almost three hundred years from its Àrst puElication, did the work of Copernicus come off the Index. The paradigm shift was complete. The Copernican concepts were logically presented with sound physical supporting evidence. Why then did it take so long for them to gain acceptance? The term “mental model” may imply that we use rational or logical processes to form and maintain our Eeliefs, and indeed we do. However, our Eeing at its deepest level³which we descriEe variously as our emotions, heart, conscience, soul, or simply our gut³acts as a key determinant of this rational process for creating and holding our mental models. We naturally select data and add meaning to that data to generate or reinforce mental models which meet our needs and desires at this most Easic level. The Copernican conception of the universe was not simply another scientiÀc advance in astronomy. 2n the contrary, it threatened people at their very cores³their place in the universe and their relationships with God. If the earth was not the center of the universe, then neither was humankind, and therefore people might no longer Ee God·s most important

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creation. No wonder resistance was high and acceptance low. What was the evidence that most people selectively attended to? It certainly wasn·t the materials puElished Ey Copernicus, nor was it the oEservations of his followers. No, in order to speciÀcally keep the general populace from learning aEout Copernican concepts, the Church fathers Eanned the Eook. Rather than observe Galileo·s data supporting Copernicus, the Church selectively attended to only his recant of Copernicus³“data” extracted through threat of torture. It was only after an overwhelming preponderance of evidence that the pre-Copernican mental model Eroke down. The response to Copernicus demonstrates what happens when a new mental model challenges an existing one that has previously met our Easic emotional or spiritual needs. A scene from the movie Lorenzo’s Oil shows the opposite situation, when new data supports a mental model which much Eetter meets one·s fundamental desires. As descriEed in the essay, “Any Luck?,” Lorenzo’s Oil is the true story aEout a Eoy, Lorenzo, who in May 1984 was diagnosed as having a rare degenerative Erain disease Adrenolenkodystrophy, or ALD. 2ver a period of years, ALD destroys the protective sheaths around the Erain cells eventually causing the loss of all Erain function and death. Lorenzo·s parents, Augusto and Michaela 2done, were told Ey doctors that there was no cure for the disease and no hope for Lorenzo. The 2dones, however, could not Must accept this fate, and so they spearheaded an effort Ey scientists to come up with “Lorenzo·s 2il,” a formula which arrested Lorenzo·s deteriorating condition Eut which did not correct any of the previous damage done. A scene from the movie demonstrates the dramatic paradigm shift that occurred among other parents at an ALD Family Conference in 1987. Prior to this conference, these parents had accepted the prevailing mental model that

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“there is no hope for my child,” and therefore they listened with polite positive acceptance as a researcher Dr. Nickolai, from NIH, descriEed proposed trials or protocols for the eventual development of a therapy for ALD. As these families listened, they thought that the descriEed therapy, if effective, would EeneÀt future generations of ALD patients Eut certainly not their own children. However, a woman from the audience interrupted Dr. Nickolai to ask if the new protocol was the result of the success of the therapy with Lorenzo. The doctor responded afÀrmatively saying that indeed it was and that it was the reason why they were doing the protocol. She then said that the therapy had also worked for her son and that she had gotten the oil from the 2dones. The therapy results for two ALD Eoys provided new data for the audience³evidence that a therapy was successful on children currently suffering from ALD. Suddenly, the energy level in the room rose dramatically, and people started asking Dr. Nickolai aEout the availaEility of this oil. The doctor explained that it was Àrst necessary to conduct a series of protocol trials and then suEmit the results to the FDA for further review, which everyone realized was a process that would take several years. However, another woman shouted out that AID·s patients were given the experimental drug Laetril Eefore all protocols were complete, Eecause the AID·s patients were dying anyway. This woman·s comment aEout Laetril and the knowledge of the two Eoys· success with the therapy were all the data necessary to spark a dramatic paradigm shift. The parents, who had only moments Eefore listened patiently and appreciatively to Dr. Nickolai, were now on their feet screaming, “I want that oil!” The pressure from these families led to FDA approval of Lorenzo·s 2il for use as an experimental drug without the traditional protocol process. Since its develop-

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ment, many ALD children are now aEle to lead more normal and productive lives. The paradigm shift at the ALD Conference occurred literally in a matter of minutes. Why did this shift occur so quickly when the Copernican paradigm shift took almost three hundred years? The answer is that the newly created paradigm “there is hope for my child” rather than Eeing a threat helped these parents Eetter meet a most Easic need³ their love for their children and their deep desire to care for, protect and help them to grow and Ee healthy. 2nce they had sufÀcient data to support the new paradigm, they immediately grasped for it. We can conclude that it is difÀcult for us to challenge mental models that we Ànd to Ee to our disadvantage, particularly those that Ering into question the most important Eeliefs in our lives. To the contrary, it is much easier to adopt a Eelief that is to our EeneÀt. The more advantageous this Eelief, the greater is our willingness to adopt it. The creation of American Woodmark·s 1995 Vision, as descriEed in the case study, was the result of a maMor paradigm shift in my thinking from a mental model that held that providing signiÀcant product variety on short lead-times was cost prohiEitive to a new Eelief that providing such variety could Ee accomplished with minimum cost premiums. As I mentioned, this shift took place in the course of my reading a single Eusiness article, or in a matter of minutes. People in our manufacturing ranks, when they Àrst learned of the 1995 Vision, quickly formed the view that they should resist its implementation to “save the company” Ey maintaining the status quo. After March 4th 1991, when our two largest home center accounts indicated that they were replacing up to 50 percent of our sales to them, these same people now feared the status quo. They had a sudden paradigm shift, now Eelieving that we needed to implement the

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1995 Vision as quickly as possiEle to again “save the company.” Similar to the 2dones, our manufacturing people adopted Eeliefs that they thought were to their own and the organization·s Eest interests. These Eeliefs were deeply held. It was only through overwhelming evidence that they had a shift in thinking to a new paradigm.

IMPLICATIONS FOR LEADERS Key points are as follows. z Leaders must Ee open to challenging their own mental models and learning the skills to do so. z 2rganizations that continually assess the adequacy of their mental models have a signiÀcant competitive advantage over those that do not. z 2f particular note to leaders are mental models that are fundamental to the viaEility and sustainaEility of the enterprise. z The greater the willingness to test these mental models, the greater the likelihood that organizations will surface Ereak-through paradigm shifts, which if acted upon will dramatically disrupt traditional structures of the competitive landscape. Such shifts in industry dynamics can lead to quantum changes in organizational effectiveness.

SUMMARY Mental models are our “internal pictures of how the world works.” They are important Eecause they determine not only how we see the world Eut also how we take action. Mental models are created through the ladder of inference, where we select data, add meaning, adopt a Eelief and take action.

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We can use reÁection, advocacy and inquiry to test the adequacy of our mental models. A paradigm shift occurs when we suEstitute one mental model for another. The more disadvantageous a new Eelief is to our deepest needs, the more difÀcult it will Ee to adopt. 2n the contrary, we more readily emErace mental models that are to our EeneÀt. The capacity to challenge mental models is critical to the creation and maintenance of exceptional organizations. FUTURE STUDY

z Look for areas in your professional or personal life where you hold mental models that are different from those held Ey others. Use “reÁection” to examine the adequacy of your Eeliefs. If possiEle, meet with these other parties and use “advocacy” and “inquiry” to Eetter understand your Eeliefs relative to theirs. z ReÁect upon a time when your mental model changed³where you had a paradigm shift. DescriEe the shift in terms of the ladder of inference for Eoth the prior and the new mental model. How did this change come aEout? RELATED CHAPTERS

z Essay:

“Not Knowing is Your Friend”: 89

z Lessons: Culture: 150 Understanding Discourse: 204

31

HUMAN MOTIVATION This lesson shows how human motivation impacts Eehavior. It descriEes how we can take action to meet our desires, make primary and secondary choices in support of our aspirations and values and create new alternatives when our motivations are in conÁict. With this understanding, we can Eetter serve our own and the organization·s Eest interests.

BACKGROUND This lesson is Eased in part on the work of RoEert Fritz as descriEed in his Eooks, The Path of Least Resistance and The Path of Least Resistance for Managers.

WHAT MOTIVATES US? RoEert Fritz states that human motivation is the result of a discrepancy Eetween what we want, “our desired state,” and what we have, “our current state.” This discrepancy creates tension, which leads to actions to resolve it. This occurs when the actual state Eecomes the same as the desired state, as diagrammed in ExhiEit 31.1. ExhiEit 31.2 shows a simple example of human motivation. When our desired level of hydration is different from our current state, we get thirsty and drink water until our desired and current level of hydration are one and the same. These relationships create a simple tension-resolution system, where Eeing thirsty is the tension and drinking water is the resolution. 225

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Fritz deÀnes the tension Eetween the desired state and the actual state as structural tension, as diagrammed in ExhiEit 31.3. Structural tension is the Easis of all human motivation.

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PRIMARY AND SECONDARY CHOICES Some of our aspirations³what we desire³are primary in the sense that we want them for their own sake. Similarly our core values³how we want to Ee³are also primary. When we decide to organize our lives according to our aspirations and values, we make primary choices that Eecome concrete, desired end results. We also make secondary choices that support the achievement of primary choices. ExhiEit 31.4 diagrams these relationships. We may have a general desire to take care of our children. So, we make a primary choice to provide for their upEringing and education. We make a secondary choice to earn sufÀcient money to provide for them in the manner we aspire to. ExhiEit 31.5 presents an example.

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STRUCTURAL CONFLICT ConÁict occurs when tension-resolution systems compete. Fritz descriEes a classic example. When we are hungry, we resolve our tension Ey eating, as shown in ExhiEit 31.6. If this were the only system operating, life would Ee grand. However, if we are overweight, we have a different tension which we resolve Ey dieting, shown in ExhiEit 31.7.

The two tension-resolution systems are related and in conÁict. We cannot resolve Eoth tensions at the same time³ we cannot simultaneously “eat” and “not eat.” ExhiEit 31.8 structures this conÁict. When we eat, we reduce the tension on the hungry-eat system arrow 1 . Not only are we satiated, Eut we also gain weight and increase the tension on the overweight³don·t-

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eat system arrow 2 . The path of least resistance is now to reduce this tension Ey dieting arrow 3 . But once we have stopped eating and lose weight, we Eecome hungry again, and the tension now increases with the hungry³eat system arrow 4 . People who diet, lose weight and then gain it Eack are acting within this structure.

Fritz deÀnes structural conÁict as two or more tensionresolution systems in which the points of resolution are mutually exclusive. It is natural to attempt to resolve a structural conÁict. However, these efforts will not work Eecause there can Ee no Ànal resolution, only oscillation or movement Eack and forth Eetween mutually exclusive points. When we are on a swing, we cannot simultaneously Ee at Eoth the highest point in front of the swing and at the highest point in Eack of it. 2nce we reach one high point, all of the momentum is gone and the potential energy caused Ey gravity takes us Eack to the other high point. It is only Ey changing the underlying structure that we can make any real changes to take us to a new place.

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Although we cannot resolve a structural conÁict, we can create a structural-tension system that is senior to it and which takes precedence over it. When this occurs, our existing structural conÁict Eecomes part of our current reality. We may still continue to oscillate Eetween mutually exclusive points, Eut this conÁict will recede in importance as we move toward the resolution of a senior structure which is dominant. If our structural conÁict Eetween eating and dieting is the only structure in effect, we will continue to oscillate Eetween these two Eehaviors. If, however, we make a primary choice to Ee healthy, then we create a more senior structure³one of structural tension, as shown in ExhiEit 31.9.

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The tension created Ey the disparity Eetween the vision to Ee healthy and the current reality of not Eeing healthy may lead to a numEer of actions to improve health: exercise, getting a physical examination, relaxation, taking vitamins³in addition to altering eating patterns. The conÁict of “eat³ don·t-eat” may still exist, Eut it may recede in importance. Having our “favorite dessert” may Eecome less important than improving and maintaining health. Weight might still Áuctuate Eut around a narrower range that is consideraEly healthier. The conÁict is still there, Eut it doesn·t matter as much relative to the primary choice to Ee healthy.

CONFLICTING VALUES 2ur values guide our Eehavior³whether we are trustworthy, compassionate, truthful, loyal or courageous. Sometimes, however, our values come into conÁict, and we have to choose an action that will simultaneously support one value Eut Eetray another. For example, we may value “honesty” and “loyalty” when giving an employment reference for a former coworker for whom we have had MoE performance concerns. Should we Ee totally honest or completely loyal? Although we may vacillate aEout what to do, once we do take action, our Eehavior may Ee more in accordance with one value than another. It is when we face such a conÁict that our predominant values are revealed.

OBSERVATIONS ON MOTIVATIONS We often witness different human motivations. z When Sam·s MoE is going well, he wants recognition and rewards. z When an economic downturn threatens his organization, Sam wants security to keep his MoE and provide for his family.

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z Betty values the organization·s mission and is passionate aEout helping the organization achieve its vision. She organizes her work-life to support this priority. She is not particularly motivated Ey recognition, rewards or MoE security. z BoE oscillates Eetween taking on more challenging responsiEilities which he would enMoy and staying in his existing position where he is more comfortaEle. We can make several oEservations aEout what we have learned. z We want what we want, and we value what we value. We can·t will ourselves nor can others will us to want something we don·t want or value what we don·t value. z What motivates one person does not necessarily motivate another. z If circumstances change, what we want may change. z A met desire is no longer a source of motivation. z A met need may not stay met and therefore may Eecome a new desire. z Behaviors may oscillate Eecause multiple motivations that cannot Ee simultaneously met. z When values are in conÁict, our actions will reÁect which ones dominate. z We can organize our lives around our aspirations and values, making secondary choices to support them.

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IMPLICATIONS FOR LEADERS An understanding of human motivation has several implications. z Since organizations cannot impose values on individuals, it is important that we hire and advance people who have values that match those which our organizations· emErace. z We can inspire people Ey presenting them with opportunities which are consistent with their own values and aspirations. z Being sensitive to what motivates particular individuals in speciÀc circumstances is critical to leading them in their own and the organization·s Eest interests. z Although we can·t will a particular motivation or determine a particular Eehavior, leaders can create environments³such as with rewards and punishments³which can inÁuence Eehavior Eecause the environment satisÀes already estaElished motivations. z There is no formula³each individual and each circumstance is unique. z Understanding human motivation is a key skill for leaders who are intent on creating exceptional organizations.

SUMMARY This lesson provides a Easic understanding of human motivation and its implications for organizations and their leaders. We make primary and secondary choices to support our aspirations and values. 2ur Eehaviors may oscillate Eecause

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we have a structural conÁict Eetween competing structuraltension systems. By understanding human motivation, we can Eetter lead individuals for Eoth their organizations· and their own EeneÀt. FUTURE STUDY

z Think of some of your recent Eehaviors. DescriEe them as tension-resolution systems. For each, indicate the discrepancy Eetween the desired state and the actual state. z DescriEe a general aspiration or value you have and any primary and secondary choices you have made to support it. z Diagram, as shown in the lesson, a structural conÁict you have experienced. RELATED CHAPTERS

z Essay:

“What Do I Want?”: 78

z Lessons: The 7-Step Process: 183 Ethical Dilemmas: 268

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WORKING IN TEAMS This lesson presents the principles of working in teams. It descriEes when a group Eecomes a team and shows Eoth the EeneÀts and costs for individuals in Moining one. It emphasizes the importance of highly-effective teams to the creation of exceptional organizations, and it presents two types of teams, each of which is critical for doing the work of the enterprise.

BACKGROUND This lesson is Eased in part on the unpuElished works of Kent Guichard and Roger VandenEerg.

DEFINITION We can descriEe an organization as “two or more people who come together for a common purpose.” In their Eook, The Wisdom of Teams,” -on KatzenEach and Douglas Smith deÀne a team as “a small group of people with complementary skills who are committed to a common purpose, performance goals and approach for which they hold themselves mutually accountaEle.”1 With this deÀnition, a team is an “organization” with unique attriEutes.

WHEN A GROUP BECOMES A TEAM A group of people is not a team. It Eecomes one only as the team develops certain attriEutes, and its memEers adopt speciÀc Eehaviors. 236

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TEAM ATTRIBUTES:

z a shared purpose and vision z an identity Eeyond the separate identities of the individuals z recognized roles, hierarchy and leaders z familiarity among memEers z shared history and experiences z necessary processes z open communication. TEAM MEMBER BEHAVIORS:

z commitment³holding themselves and others accountaEle for desired results and making individual sacriÀces for the good of the whole z trust³Eeing conÀdent other team memEers will do what is expected, valuing their contriEutions and accepting their differences z caring³valuing team memEers as human Eeings, caring aEout their personal growth and development. With this description, the transition from a group to a team is a gradual evolution as the group takes on more of the characteristics of a team. Even though many of the team attriEutes may Ee in place, highly-effective teams do not come into Eeing until team memEers Eehave with a heightened sense of commitment, trust and caring.

BENEFITS AND COSTS OF JOINING A TEAM There are several EeneÀts for individuals in Moining a team.

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BENEFITS:

z two or more accomplishing what one cannot z opportunities for individual learning and growth z camaraderie that Euilds conÀdence and provides a support network z a sense of security in Eeing part of the team z a sharing in the success of the team. COSTS:

z teams take time z changes in individual Eehavior may Ee required z privacy may Ee foregone z less individual recognition z potential vulneraEility in front of others z taking on everyone·s Eurdens z sharing in the team·s failures. Although it is important to Ee aware of the costs, individuals who work in teams typically gain great satisfaction and personal growth Ey Eeing memEers.

THE IMPORTANCE OF TEAMS FOR ORGANIZATIONS While a few MoEs in organizations may require solely individual effort, most tasks require the effective interaction and participation of two or more people. Structuring work so that it can Ee accomplished in small teams³ranging from two to

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twenty Eut ideally from Àve to ten³creates the potential for superior results. This potential is released as groups Eecome teams, and teams Eecome highly-effective³with heightened levels of commitment, trust and caring. .

There are two categories of teams within organizations³ natural-work teams and cross-functional teams. NATURAL-WORK TEAMS: The purpose of natural-work teams is to more effectively accomplish tasks that involve people who normally work together. They are comprised of supervisors and those reporting directly to them. They have the following characteristics. NATURAL-WORK TEAM CHARACTERISTICS

z They are organized according to the traditional management hierarchy. z Supervisors are team leaders, and their direct reports are team memEers. z Supervisors retain their hierarchical authority. z Teams have common goals and measures of performance. z All team memEers are responsiEle for goal achievement. z Team memEers share in the success of the team. CROSS-FUNCTIONAL TEAMS: The purpose of crossfunctional teams is to Eetter accomplish tasks that require the involvement of people from separate functional areas. They are comprised of a designated team leader and team memEers from different parts of the organization, all of whom have additional MoE responsiEilities in-

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dependent of those of the team. They are characterized as follows. CROSS-FUNCTIONAL TEAM CHARACTERISTICS

z A memEer of senior management, who has the authority to act on Eehalf of the organization, acts as the team sponsor. z The sponsor chooses the team leader. z The team·s leader chooses its memEers with the approval of the team memEer·s supervisor. z The sponsor issues a charge statement to the team designating its purpose, resources availaEle and constraints. z 2nce the team·s purpose is achieved, the team is disEanded. z Some cross-functional teams may Ee on-going as long as they serve an ongoing purpose of the organization. Natural-work teams and cross-functional teams are the fundamental structures Ey which exceptional organizations do the work necessary to achieve their goals. As descriEed in the case study and the essay, “A Bad Plan Poorly Executed,” American Woodmark·s aEility to work with natural-work teams and cross-function teams was a fundamental Euilding Elock for the achievement of our 1995 Vision. Although simple in concept, we went through a numEer of trials and errors Eefore we successfully created this capacity.

IMPLICATIONS FOR LEADERS Leaders can utilize the following checklist to effectively utilize teams in their organizations.

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1. EstaElish whether the work to Ee done should Ee done Ey an individual, a natural-work team or a cross-functional team. 2. Assure that the team is comprised of people who have the necessary skills to achieve the task. 3. EstaElish ground rules to guide Eehaviors. 4. Create a vision of the team·s desired results. 5. Gain commitment Ey helping team memEers create a shared acceptance of the vision and estaElish mutual accountaEility. 6. Gain a shared understanding of current reality relative to the vision. 7. Take action to move the current reality toward the vision. 8. EstaElish trust among team memEers as each individual makes their respective contriEutions to the team·s efforts and learns to accept other team memEers· differences. 9. Promote caring among team memEers Ey creating time apart from task-related activities to interact socially and learn aEout each others· Eackgrounds, family, interests and aspirations. 10. Resolve unacceptaEle Eehaviors that might impact the achievement of the team·s vision, the individuals· responsiEilities to the team and other team memEers and adherence to the team·s ground rules. 11. CeleErate the achievement of milestones and Ànal results.

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By using this checklist to create visions for their teams, leaders dramatically increase the likelihood that their team memEers will look Eeyond their own self-interests to Ee inspired to help achieve the organization·s purpose and highest aspirations.

SUMMARY Individuals who work in effective teams typically gain great satisfaction and personal growth Ey Eeing memEers. Teams play a signiÀcant role in helping organizations achieve their purposes. Highly-effective teams³those that engender a heightened level of commitment, trust and caring among memEers³are fundamental Euilding Elocks to the creation of exceptional organizations. FUTURE STUDY

z Evaluate the effectiveness of teams you have participated in relative to the principles in this lesson. z If you are leading a team, use the “Checklist for Team Leaders” as a guide. RELATED CHAPTER

z Essay:

A Bad Plan Poorly Executed: 110

Section 3.4

THE JOURNEY This section presents three lessons that address some of the issues that arise along the Mourney toward creating exceptional organizations. The Àrst, “Working in Alignment,” descriEes how to measure performance and modify actions as necessary in the pursuit of this goal. The second, “Cultural Change,” shows the Earriers to organizational change and the steps to Ee taken to overcome them. The third, “Ethical Dilemmas,” provides a method for living according to one·s core values Ey offering a technique for resolving right-versus-right choices where one value is in conÁict with another.

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WORKING IN ALIGNMENT This lesson descriEes how to organize work to achieve the goals of the enterprise. It shows how to measure performance and modify actions as necessary to achieve the desired results.

BACKGROUND This material is Eased in part upon the work of RoEert Fritz in his Eook, The Path of Least Resistance for Managers.

WORK HIERARCHY We can deÀne the work of an organization as the “actions taken in pursuit of its purpose.” Work is what an organization does. Working in alignment means that actions are orchestrated in harmony with one another and are effective and efÀcient with a minimum of wasted effort. The lesson, “The 7-Step Process,” presented a primary tool for doing work: THE 7-STEP PROCESS

1. Create a Vision 2. Understand Current Reality 3. Take Action 4. Measure Performance 244

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5. Modify Actions 6. Achieve Results 7. Create a New Vision ExhiEit 33.1 again depicts these steps:

Tension is created Eetween our vision and current reality which leads to our taking action to relieve the tension and move toward our vision. We measure our performance and modify our actions until we achieve our desired results. We then create a new vision.

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We can use the 7-Step Process to form a work hierarchy as previously descriEed in the Lesson, “Vision-Driven 2rganizations,” to structure work at each level of the organization. ExhiEit 33.2 again shows this structure.

As the example in ExhiEit 33.3 shows, the entity·s purpose at the corporate level is to provide a service to a particular constituency. Its action is to provide Àve programs Ey next -anuary. The action step at the corporate level Eecomes the vision at the division level³“Have Àve programs Ey next -anuary.” Action Step 2³at the division level is to, “Complete Program B Ey next -anuary.” Accomplishing this Eecomes the vision at the department level, which has several steps for its achievement.

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2rganizing work on a level-to-level Easis assures that all actions necessary to achieve the organization·s purpose are clearly estaElished. Furthermore, any activities previously done Ey the organization, Eut which are not included in the work hierarchy are identiÀed as Eeing non-essential or wasteful. Working in alignment means that all the necessary, and only the necessary, actions to achieve a vision are done at the right level Ey the right people at the right time.

MEASURING PERFORMANCE To maintain alignment, we need to measure performance to assure that the actions we take are successful. The question arises, “What is the right data to measure?” There are three categories of data; those which:

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z reÁect movement toward a vision z meet expectations of achievement z inÁuence future actions. An example of data reÁecting movement toward a vision is the weekly measurement of on-the-MoE accidents as part of a safety improvement program. Data that meets expectations of achievement would Ee exempliÀed Ey an entity that deÀnes its vision of Ànancial viaEility as achieving a certain annual cash Áow and, therefore, measures its cash Áow performance relative to this target. Data to inÁuence future actions is exempliÀed Ey the use of market research to test the effectiveness of alternative sales promotions. 2ther examples of measurements are: z quarterly or annual Ànancial reports z performance reviews for employees z client feedEack z quality audits z employee surveys. 2ne particular measurement for organizations is a scorecard, which deÀnes a range of goals that must Ee achieved Mointly to achieve success. ExhiEit 33.4 shows an example of a department within an organization that provides a product or service. It is responsiEle for generating a desired output within a speciÀc quality standard, delivery time and cost. Goals for performance criteria are listed along the right side of the card, and actual performance is portrayed across the card for each time period.

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RESPONSE TO MEASUREMENTS 2ur feelings will differ depending upon whether or not our actions are successful. If they are, we are likely to feel satisÀed, happy and energized with a sense of accomplishment. If they are unsuccessful, we may feel disappointed, stressed and frustrated with a sense of failure. No one likes to fail, Eut we can ask ourselves, “Is failure okay within an organization?” The answer is: z yes³when a legitimate effort is made toward a goal, and the party learns from the experience z no³when the party makes no effort toward the goal, has Eeen negligent, has acted grossly in conÁict with the organization·s values, or has continuously failed with no prospect for improvement. Everyone fails at one time or another. In his career, BaEe Ruth hit a tremendous numEer of home runs, Eut he also struck out a lot. The challenge is to not let individual failures keep us from pursuing our goals. As Henry Ford put it, “Failure is only the opportunity to more intelligently Eegin again.”

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MODIFYING ACTIONS When performance measurements indicate that Eehaviors are not successful, it is necessary to modify actions. The decision to do so may seem straightforward³our actions either work or they don·t. However, in reality this decision is much more complex. An example many of us have experienced is getting lost while driving our cars. How many of us have Must kept on driving long after we were aware that we didn·t have a clue as to where we were? There are many Earriers to changing Eehavior. Some of these are: z inadequate information on progress z difÀculty in understanding why goals were not achieved z unwillingness to admit to ourselves and others that our actions were wrong z fear of change z a feeling of comfort with past haEits and Eehaviors z fear of not having the knowledge or skill to go in a new direction z Eeing uncommitted to the goals in the Àrst place z a feeling that changing Eehavior may Ee an admission of failure z organizational resistance to change³momentum to proceed as planned. To facilitate its aEility to modify actions, the organization can create an environment that provides a willingness to: z question existing assumptions z make maMor changes when necessary

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z set difÀcult goals, accept risk and expect a certain amount of failure. With such an environment, failure can Eecome a stepping stone to success.

AMERICAN WOODMARK’S EXPERIENCE American Woodmark·s aEility to work in alignment evolved over a numEer of years. During the 1980s, most of our performance measurement systems were suEMective, if they existed at all. For example, quality control was Eased upon reactions to complaints from customers. There was no accountaEility for quality Eecause there were no standards upon which to make an evaluation and no way to determine whose actions might have led to a speciÀc result. As part of our 1995 Vision, we Eegan a gradual process that continues to this day of creating measurement systems for critical functions such as production, cost, quality, safety, customer service, delivery, product development and employee performance. We organized work according to work hierarchies with each functional area having its own scorecard measuring its effectiveness. Where the company·s aEility to work in alignment was a strategic deÀciency in the 1980s, it Eecame a source of competitive advantage in the 1990s.

IMPLICATIONS FOR LEADERS Key points are as follows. z Many organizations· actions are disconnected from their visions and aspirations. They engage in some activities that are unnecessary, while neglecting others that may Ee critical for success. z By organizing action steps into a work hierarchy, leaders can achieve their organizations· goals with

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the most effective and efÀcient use of time, money and other resources. z Leaders need to create cultures that Eoth foster candid appraisals of performance and a willingness to modify actions as soon as appropriate. z Working in alignment is a critical element in the creation of exceptional organizations.

SUMMARY This lesson provides a methodology to keep the work of the organization in alignment. The Easic framework for doing so is the creation of a work hierarchy Eased upon the principles of the 7-Step Process. To stay in alignment, the organization needs appropriate performance measurements so that actions which are not on track can Ee modiÀed. When the organization works in alignment, it increases its capaEility to achieve its purpose and to do so as effectively and efÀciently as possiEle. FUTURE STUDY

z Think of an organizational proMect, either actual or imagined, that requires the work of people at multiple levels of the enterprise. 2rganize the work using the work hierarchy. Include due dates and individuals or departments responsiEle for the achievement of action steps. 2nce this is done, estaElish appropriate performance measures to monitor progress toward the desired result. z Are there times when you have resisted making a necessary change? If so, what were the Earriers to your taking action?

Working in Alignment

RELATED CHAPTERS

z Essay:

“What Do I Want?”: 78

z Lessons: Vision-Driven 2rganizations: 130 The 7-Step Process: 183

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CULTURAL CHANGE This lesson uses systems thinking as a framework for understanding the nature of cultures and, where they are deÀcient, how to change them.

THE WIDGET DEPARTMENT Imagine an organization with many departments, one of which produces widgets. The Widget Department is comprised of a supervisor and several workers, all of whom have worked in their current MoEs for many years. The existing production process requires each worker to perform a separate and unique MoE for the completion of each widget. 2ne day, senior management decides that the organization would EeneÀt from a change in the process, whereEy all workers learn each others MoEs and rotate through the various work stations. A recently recruited staff person from the corporate ofÀce comes to the Widget Department to proudly explain the advantages of the new program for Eoth the organization and the department·s workers, who would now learn new skills, Ee more productive, have more variety in their work and receive a higher wage. Guess the reaction of the workers to this plan³excitement aEout the new work structure, glad aEout the pay increase or thankful for the opportunity? A few respond this way. However, most react with fear! For these individuals, any good thoughts aEout the plan are immediately overwhelmed Ey a concern that they might 254

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Ee unaEle to meet the new MoE requirements, putting their MoEs in Meopardy. The department Eegins the implementation of the new plan under the guidance of the corporate staff person. While there are Eoth positive and negative aspects to the methods used to introduce the plan, can you imagine what the workers focus upon? Those holding a mental model of “fear of MoE loss” selectively attend to every instance where the program looks Áawed. They generalize that the program is no good, and they reMect it and offer resistance in any way they can. Eventually the program fails. Senior management gives up on its plan, the staff person returns to the corporate ofÀce and work returns to the previous routine with each person working in the same MoE in the same place. ExhiEit 34.1 shows this sequence of events.

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If you were the staff person, how would you go aEout changing the Widget Department to achieve senior management·s desired result? Write down your thoughts, and we will return to them later.

SYSTEMS THINKING Systems thinking provides a framework for understanding cultures. It postulates that all things are interconnected, and that they are interconnected Ey systems. A system is deÀned as “a collection of parts which interact with each other to function as a whole.” All systems are comprised of feedEack loops which provide feedEack to the system·s current state causing it, in the case of reinforcing loops, to change its status and move toward a new state and, in the case of balancing loops, to maintain the current status setting limits on change. REINFORCING LOOPS: With reinforcing loops, small changes, if unchecked, lead to exponential growth or contraction. Imagine that you were given one penny on day one, two pennies on day two, four pennies on day three, eight pennies on day four and so on for thirty days. How much money would you have on day 15?³over 163. How much on day 30?³over 5 million. The action of douEling the numEer of pennies each day creates exponential growth and a change in the status of the numEer of pennies received each day as presented in ExhiEit 34.2. A loop that leads to exponential growth, as in this example, is a positive reinforcing loop. Alternatively, consider a pond that is completely covered with a total of one million lilies. After the Àrst frost in the fall, one half of the lilies die each day. When is the pond half full?³the second day with 500,000 lilies. How many lilies are left after the tenth day?³1,953 lilies. In how many days will it take for there to Ee one lily remaining in the pond? As shown in ExhiEit 34.3, it takes only 21 days.

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A loop that leads to contraction, as with the case with the lilies, is a negative reinforcing loop. Reinforcing loops have an action, either for growth or contraction that changes the existing status or condition as shown in ExhiEit 34.4. In the example of the pennies, the condition is “the numEer of pennies” at any point in time, and the growing action is the “two times increase.” In the pond, the condition is “the numEer of lilies,” and the contracting action is a “50 percent reduction.”

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BALANCING LOOPS: With Ealancing loops, attempts to change the current condition are countered resulting in a return to the initial condition. The greater the attempted change, the more severe the counter measure. Picture that you are driving a car. You start Ey putting your foot on the accelerator, and the car Eegins to move. As you keep your foot on the pedal, you go faster until you reach a target or limit which causes you to reduce the pressure. 2nce you do, the car slows down Eelow the target³perhaps the speed limit³until you eventually accelerate the car again. The system Ealances around this target, as is illustrated in ExhiEit 34.5.

Balancing loops are tied to a target such as an external goal or constraint. This is illustrated in ExhiEit 34.6. In the example of driving a car, the condition is “the speed” at any point in time, the corrective action is “pressure on the gas pedal,” and the target is “55 miles per hour.” It is corrective in that pressure is increased if the current speed is Eelow the target and decreased if it is aEove the target.

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INTERCONNECTED SYSTEMS: In our world, individual systems very often comEine into larger more complex interconnected systems. An example is the relationship Eetween national employment and consumer spending as illustrated in ExhiEit 34.7. As consumer spending rises, employment increases, which results in consumer spending rising again, and employment going up again. This is a positive feedEack loop. Alternatively, if for some reason consumer spending were to go down, then employment would go down further reducing spending which would further reduce employment. The same relationship can Ee either positive or negative depending upon whether the initial action is growing or contracting. This example is a reinforcing system Eecause it is characterized Ey change. 2nce employment and consumer spending start changing, there is nothing within the system to keep them Eoth from either growing to inÀnity or dropping to zero. In reality, this doesn·t happen. The reason is that this reinforcing system continues unchecked only until it reaches a limiting Ealancing system that acts as a constraint.

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If employment drops Eelow an acceptaEle level, as measured Ey the unemployment rate, the government acts to stimulate the economy which then causes employers to invest in their Eusinesses thereEy creating new MoEs. This continues until the employment level rises to within the targeted level which, when accomplished, results in a reduction of the stimulus, as shown in ExhiEit 34.8.

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This is a balancing system Eecause it is characterized Ey a Ealancing loop that keeps the system stable. The two systems can Ee comEined into a larger system as shown in ExhiEit 34.9 that incorporates the elements of employment, consumer spending, Eusiness investment and economic stimulus into an overall economic system.

This is an interconnected system Eecause it is comprised of separate individual systems. It can Ee characterized as a Ealancing system Eecause it will tend to keep employment levels stable within a targeted range.

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CULTURES AS SYSTEMS As previously descriEed, an organization·s culture consists of its values, Eeliefs, traditions and processes that guide Eehavior. A culture is a system in that it has “interconnected parts that function together as a whole.” It is a Ealancing system Eecause it tends to keep its status or condition staEle within estaElished parameters. When we say that an organization has a culture, we mean that Eehaviors tend to remain constant even though the environment changes.

CULTURAL CHANGE If cultures are, Ey their nature, staEle, how do we change them? To Eegin, we can use the 7-Step Process to articulate our desired new culture. We can then descriEe our existing culture in relationship to this vision. The discrepancy Eetween our desired culture and our current status creates tension, which we resolve Ey taking action to move the existing culture toward our vision. From a systems-thinking perspective, there are two categories of action steps; Àrst, the creation of reinforcing loops which reinforce movement toward a desired new culture and second, the elimination of Ealancing loops which keep the culture in its current state. This process is illustrated in ExhiEit 34.10. Let·s examine the Widget Department with regard to what we have learned. There is a desire for a new culture incorporating MoE rotation. The department is a staEle system in that it resists attempts to change it. Now, look at the list of actions you previously prepared to change the Widget Department. Which of these would you characterize as steps reinforcing movement toward the desired culture? Which would you descriEe as eliminating Ealancing loops keeping the department in its current status?

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If your list is typical, your actions will Ee predominately Eased upon steps with reinforcing loops to get you to the desired state rather than actions to eliminate Ealancing loops that keep you where you are. Examples of possiEle actions for the Widget Department are: z actions with reinforcing loops: ¶ explain EeneÀts of MoE rotation ¶ offer a Ànancial incentive ¶ provide adequate training

z actions which eliminate Ealancing loops: ¶ let those with the greatest concerns Ee the last to convert ¶ offer MoE protection for an extended period ¶ provide even more than the perceived adequate training to Eetter help those with the greatest concerns.

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It would seem that steps with reinforcing loops that explain the EeneÀts, offer an incentive and provide adequate training would Ee sufÀcient to implement the program. However, action steps that eliminate Ealancing loops such as those that reduce the fear associated with the new program are likely to Ee critical. Some action steps, such as training, may serve Eoth as a reinforcing step and as the removal of a Ealancing loop.

AMERICAN WOODMARK’S EXPERIENCE There were two elements to American Woodmark·s 1995 Vision initiated in 1989; Àrst, a suEstantially new strategy and second, a new culture to support this strategy. The case study and the essays descriEe some of the steps we took to change our culture. A few points are relevant. First, with my conÀdence and optimism aEout our new direction, my initial tendency, similar to the driver in the cartoon aEove, was to focus on the positive aspects of our change effort. I paid less attention to the Earriers

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that kept the organization from endorsing this change. Second, our corporate culture was extremely complex having evolved over many years. Unfortunately, it did not come with a user·s manual. Therefore, it was impossiEle to know all the answers Eefore proceeding, and we could only learn what to do Ey trial and error. Third, our cultural change was chaotic. Because we were attempting such a dramatic change, our existing culture³which Ey its nature was staEle³countered our efforts Ey offering tremendous resistance to maintain the status quo. This resulted in almost universal resistance to all initiatives, making it difÀcult to determine whether a particular direction was appropriate or not. As a consequence, it often took us longer than one would expect to understand when we had gone in the wrong direction. 2ur eventual success in changing the culture was the result of our senior team·s perseverance in holding our vision, while Eeing open to modifying actions in its pursuit.

IMPLICATIONS FOR LEADERS Leaders can use the following checklist to create the cultures they desire. 1. Assess whether the existing culture supports the organization·s purpose, aspirations and values. 2. If it does, maintain this culture Ey consciously taking action to preserve it. 3. If the existing culture is inadequate, create a shared vision of the desired culture among key stakeholders. 4. Understand the current reality of the existing culture, including those elements which act as Earriers to changing it. 5. Create action steps to change the culture to the desired state. Action steps can include Eoth steps that reinforce movement toward the desired cul-

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ture and steps that remove constraints that keep the existing culture in place. 6. Measure the results of the actions taken and modify them as necessary. 7. 2nce the organization has an exceptional culture³ one that supports its purpose, aspirations and values, Ee vigilant in maintaining its status.

SUMMARY Cultures are staEle systems in that they tend to maintain Eehavior even though the environment changes. This feature is valuaEle provided that the existing culture is adequate for the achievement of the organization·s purpose. When it isn·t, the principles of systems thinking can Ee used to create a new culture. Using them requires not only taking actions that foster movement toward a new culture, Eut also steps that eliminate factors that keep the existing culture staEle. FUTURE STUDY

z Make a list of three systems that have either positive or negative reinforcing loops and a second list of three that have Ealancing loops. z If you have ever Eeen associated with an organization going through a cultural change, descriEe the efforts to implement the change from a systemsthinking perspective. RELATED CHAPTERS

z Essay:

Guidance from Gandhi: 107

z Lessons: Culture: 150 The 7-Step Process: 183 Mental Models: 210

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ETHICAL DILEMMAS This lesson shows how individuals and organizations can make choices when faced with ethical dilemmas, where acting according to one value is in conÁict with acting according to another. It descriEes the characteristics of ethical dilemmas and methods to resolve them. The use of these techniques will support the creation of exceptional organizations.

BACKGROUND This material is Eased upon the work of Rushworth M. Kidder in his Eook, How Good People Make Tough Choices.

RIGHT-VERSUS-WRONG CHOICES How do we make right versus wrong choices? The world is full of wrong-doing. Kidder descriEes three ways to think of it: z violation of the law³stealing z departure from the truth³deceiving someone z deviations from moral rectitude where behaviors are out of synch with inner values or the values of the community³treating people with disrespect when their respectful treatment is valued. There is a fourth way to tell right from wrong³the smell test, where a Eehavior feels or smells Ead. There is no ques268

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tion as to what is the right choice. We know what to do whether we do it or not.

ETHICAL DILEMMAS An ethical dilemma is a situation where actions to satisfy or act according to one value are in conÁict with the desire to satisfy or act according to another. An ethical dilemma is a right-versus-right choice. For example: -im and Charlie went on a several-day trek hunting on horseEack in a wilderness area. Something spooked Charlie·s horse, which lost its footing and fell over, crushing Charlie·s leg and side. Charlie was in agony, and -im quickly saw that there would Ee no way he could Ee moved on horseEack. It was late afternoon, and the temperature would soon Ee falling Eelow freezing and -im knew that Charlie would suffer from hypothermia. Riding as fast as he could for help, -im understood it would take at least two days for a rescue attempt. After making Charlie as comfortaEle as he could, -im said that he was going for help. Charlie responded, “Bring me my riÁe.” With the look in Charlie·s eyes as he said this, -im knew what Charlie intended once -im was gone. What should -im do? -im·s dilemma is a right-versus-right choice. Kidder descriEes four categories of ethical dilemmas: z truth versus loyalty z individual versus community z short term versus long term z justice versus mercy.

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TRUTH VERSUS LOYALTY: This is a choice Eetween telling the truth and acting according to ethical standards or Eeing loyal to another party. For example: Betty, a supervisor, receives a call asking for a reference on a former employee, Dick, who was terminated for poor performance. Dick has a family to provide for, and Betty hopes that he will Ee aEle to Ànd a new position soon. How open should Betty Ee in responding to questions aEout Dick·s performance? -im·s story mentioned aEove also portrays a truth-versusloyalty dilemma. INDIVIDUAL VERSUS COMMUNITY: This dilemma is a choice Eetween acting in self-interest or in the interest of the community. For example: -ohn feels exhausted after completing a demanding proMect at work and Must wants to relax over the weekend. His wife and children want him to go with them to the circus in a nearEy town for one day. What should -ohn do? SHORT TERM VERSUS LONG TERM: This dilemma is a choice Eetween doing something of EeneÀt in the short term or deferring action to EeneÀt something in the long term. For example: Sally, a single mother, wonders how much to spend on her family·s current standard of living versus what she should save for her children·s education. JUSTICE VERSUS MERCY: This dilemma is a choice Eetween administering Mustice or extending mercy. For example:

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BoEEy misEehaves on his Eirthday. Should his mother inÁict a lesser punishment than she would normally for such Eehavior? Each of these categories is a right-versus-right choice. 2ften, ethical dilemmas Àt more than one category. However, usually one predominates.

RESOLVING ETHICAL DILEMMAS Rushworth Kidder descriEes three principles for resolving ethical dilemmas: z Ends-based thinking³Do what is the “greatest good for the greatest numEer.” This principle is called ends-Eased Eecause it relies upon the consequences or results of an action. z Rule-based thinking³Follow our highest sense of principle or rule. This principle calls upon us to act according to the highest rule of law or moral standard that we would want everyone to act upon in similar circumstances. z Care-based thinking³Do what you would want others to do for you. This principle requires us to empathize with those who would Ee impacted Ey our actions and asks us how we would want to Ee treated if we were in their shoes. This is the “Golden Rule.” Depending upon the ethical dilemma, one or more of these principles may apply. Consider two of the prior dilemma stories. z Jim deciding whether to give Charlie’s riÁe to him— In this story, all three principles apply. Ends-Eased thinking is applicaEle Eecause the result of aiding a friend could Ee construed as “providing the greatest good to the greatest numEer,” in this case Charlie.

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Rule-Eased thinking, Eecause of the maxim “Thou shall not kill,” and its corollary that one should not help someone to do so is perhaps the most relevant. Care-Eased thinking is also appropriate in that -im could consider how he would like to Ee treated if his and Charlie·s roles were reversed. z John deciding whether to take his family to the circus³Ends-Eased thinking appears to Ee the most appropriate resolution principle in this situation. -ohn can consider the greatest good for the greatest numEer. He can also consider care-Eased thinking Ey asking how he might want to Ee treated in a similar situation. It is important to rememEer that there are no right answers. In my experience at American Woodmark, some of the most difÀcult ethical dilemmas I faced were situations where individuals who had long contriEuted to the organization were no longer aEle to meet changing MoE requirements and increased standards of performance. The dilemmas were a comEination of “truth versus loyalty” and “the individual versus the community.” In many cases, we looked for alternative positions a person could Àll, or we waited for them to retire or elect early retirement. In others, we separated them from the company. None of these decisions were easy.

IMPLICATIONS FOR LEADERS Kidder offers a seven-point checklist that is an effective guide for leaders to resolve ethical dilemmas. 1. Recognize that there is an ethical dilemma— Make sure that it is not a right-versus-wrong choice.

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2. Gather the facts—EstaElish all of the relevant data necessary to make an informed decision. 3. Test for the four right-versus-right categories of ethical dilemmas—Doing so will help frame alternative choices. 4. Apply the three resolution principles—Determine which resolution principles are most appropriate and evaluate your alternatives relative to each. 5. Explore unique or compromise solutions— Sometimes there is an opportunity for a solution that eliminates or mitigates the dilemma. 6. Talk to an advisor—Someone not directly involved in the dilemma can offer help to clarify the relevant issues, assist in seeking unique solutions and help frame alternative choices. 7. Make a decision—2nce the previous points are completed, all the necessary information is availaEle to make a decision to resolve the dilemma. This checklist will increase the likelihood that leaders will resolve ethical dilemmas to the Eest of their aEilities and in accordance with their values.

SUMMARY When we have a right-versus-wrong choice, we know what to do whether or not we do it. There are four categories of ethical dilemmas: “truth versus loyalty,” “individual versus community,” “short term versus long term” and “Mustice versus mercy.” There are three principles to help resolve ethical dilemmas: ends-Eased, rule-Eased and care-Eased thinking. Using the seven-point checklist increases the likelihood that leaders will resolve ethical dilemmas to the Eest of their

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aEilities and in accordance with their own values and those of the organization. This tool supports the creation of exceptional organizations and helps to assure that leaders live up to the ethical standards to which they aspire. FUTURE STUDY

z Think of ethical dilemmas you have faced in the past. DescriEe the dilemmas and how you resolved them. Ask yourself whether the framework presented in this lesson would have Eeen of use to you in this effort. z The next time you face an ethical dilemma, use the checklist to assist you in resolving it. RELATED CHAPTERS

z Essay:

Talk is Cheap: 103

z Lesson:

Values: 141

SECTION

4

Section 4

AN INTERVIEW This section presents an interview of -ohn P. Howe, III, M.D., President of ProMect H2PE, an enterprise which has utilized concepts included in this Eook to assist it in its efforts to create an exceptional organization. It shows the commitment needed for leaders to remain resolute in staying true to their visions while at the same time Eeing adaptaEle as necessary to get around the inevitaEle roadElocks and setEacks that come along the way. ProMect H2PE, the People³to³People Foundation, was founded Ey Dr. William Walsh in 1958 with the mission of Eringing medical care to people around the gloEe. Upon its founding, ProMect H2PE employed the hospital ship H2PE with a cadre of health-care volunteers to carry out its mission. Today, ProMect H2PE continues its mission of humanitarian aid, operating in 36 countries worldwide and providing over 150 million of goods and services annually.

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AN INTERVIEW WITH JOHN P. HOWE, III, M.D. Bill Brandt: -ohn, you decided to use many of the principles and techniques descriEed in this Eook to support an organizational change initiative for ProMect H2PE. How did this decision come aEout? John Howe: ProMect H2PE was fortunate in having the leadership of one family³the Walsh family³for many years. I felt honored to Moin H2PE, in 2001, to continue the traditions of its founder, Dr. William B. Walsh. With my arrival came a shared expectation that we would Euild upon its current operations, strategy and culture. In 2002, we used a management consulting Àrm to help us review and reshape our program activities. This effort served us well until 2008, when we agreed that we had the leadership in place to strengthen our culture in ways that would lead to even greater accomplishment. Bill Brandt: What do you mean Ey a culture of greater accomplishment? John Howe: It was a time of high expectations within and without the organization. We were eager to use our current resources³people, time and money³to expand our work through focus and growth in the areas of health education and humanitarian aid. To do so, it would Ee important for us to come together to achieve a new level of performance throughout the organization made possiEle Ey a shared commitment to renewed pace and productivity. 277

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Bill Brandt: What prompted you to use the methodology descriEed in this Eook? John Howe: You had recently Moined the ProMect H2PE Board and had Erought your experience in leadership training to the organization. We shared our aspirations for H2PE with you. You then descriEed the challenges and opportunities of cultural change. It Eecame very clear that we had an opportunity with your method to realize our goal of greater accomplishment. Bill Brandt: Before you committed to this direction, you talked with Kent Guichard, the current CE2 of America Woodmark, who lived through American Woodmark·s Mourney. Was that a useful dialogue? John Howe: Yes, aEsolutely. Here was a real-life, signiÀcant Eusiness leader looking at you in the eye and saying, “Well -ohn, are you going to do it?” And, so you·re sitting there saying: “2h my gracious, what am I getting myself into?” The interaction was a useful one Eecause it underscored the point that Eeing successful requires the commitment of the leader, and this was a real, not a theoretical, thought. He was making the point³and stirring up a little Eit of emotion in me³that this is not for the faint-hearted, Eut also that, if achieved, would Ee of great value. Bill Brandt: You have now Eeen engaged in this initiative for over four years. Have you created everything you wanted to create? John Howe: The answer is “yes” for the Àrst four years. The effort has had great impact throughout the organization. 2ur goal was to strengthen our culture in ways that would lead to even greater accomplishment. We have witnessed this throughout the organization. This has Eeen possiEle Ey raising the level of leadership³not with a “capital L” Eut with a “small l” in ways that skills and talents have grown across

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time zones and continents. We now have a common language of leadership as alumni of this method. With this has come a certain camaraderie and Eonding. It has enaEled us to do work in ways that we didn·t Eefore³with common language, processes and expectations. That said, four years is not the end for us. 2ur strengthening of the culture continues, as we pursue even greater mastery of this method. Bill Brandt: How did this transition come aEout? John Howe: 2ur senior leadership went off-site for a threeand-a-half day retreat to Eegin this leadership training, engaging in the fundamentals of the curriculum. Spending twelve to Àfteen hours together each day, we experienced a numEer of “aha” moments, as we learned a new language and new processes. Bill Brandt: What would Ee an example of an “aha” moment? John Howe: We worked during the day and throughout the evenings as well. For example, on one night, we reviewed the history of H2PE from its Eeginnings to its legacy; on another, we engaged in dialogue. What I rememEer most aEout these sessions was that they were not typical Erisk-paced conversations. They were reÁective³deliEerately Àlled with periods of silence that gave people time to think Eefore speaking or listening. These sessions were considered to Ee among the most meaningful parts of the training. Bill Brandt: What would Ee another meaningful part? John Howe: A good example is our senior leadership team meetings. Prior to this course, our experiences were quite variaEle. People would look at some meetings as Eeing exhilarating Eut others as uncomfortaEle and unproductive. We now come to the taEle with a common set of expectations aEout how these meetings will Áow. We understand the rhythm of the meetings and their expected results, and we

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feel a sense of a connection to the deliEerations. So, it·s much more than a checklist of six or seven things to do. It·s an opportunity to Ee much more creative. Bill Brandt: How easy was it to apply your learning? John Howe: It was a challenge at the outset. As with learning any new language, it is not something one masters Must Ey taking a course. Facility with a new language is gained Ey everyday use³and it has Eeen the case with this method as well. In my ofÀce, for example, I had the Meeting Management format framed on my wall and right Eelow it that of the 7-Step Process. I regularly referred to them in the early days. Bill Brandt: What aEout other people in the organization? John Howe: The senior leadership retreat was Must the Eeginning. Using the metaphor of a peEEle landing in a pond, learning expanded over time in widening rings of involvement throughout the organization. 2ur goal was to involve our leadership, level Ey level, starting with our Regional Directors on Àve continents. We have now conducted Àve retreats, twenty people at a time, over the past four years. You led and taught our Àrst retreat. 2ther memEers of our senior leadership and I have led aEout 75 percent of the sessions in suEsequent retreats. In addition, we have trained a numEer of master trainers who teach individual sessions at lower levels in the organization. 2ne of our master trainers is the Director of Internal Audit. Wherever he audits overseas, he teaches core sessions. In addition to those who have attended retreats, over two hundred additional staff have received training at other sessions. Bill Brandt: You talked aEout creating a common language for H2PE. Is this feasiEle when you have people operating in thirty-six different countries? John Howe: For us, it has Eeen feasiEle. Most of our nearly Àve-hundred staff, even those in distant countries, speak

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English alEeit with different levels of Áuency. We have addressed these differences Ey adMusting the pace of the presentations in keeping with the learner·s aEility to acquire and retain the new language. Bill Brandt: What are H2PE·s values, and do you see them changing as a result of the culture you are trying to create? John Howe: 2ur success in strengthening our culture is related, and directly so, to our values. Three of the four³ “respect,” “integrity,” and “excellence”³are familiar to most organizations. But one is different: “compassion.” The word “compassion” goes to the heart of ProMect H2PE·s mission. There·s a compassion that is shared with the EeneÀciary³ the mother or child that EeneÀts from our programs. There·s also a compassion that·s shared with those who are delivering these initiatives³and in some cases rather difÀcult environments. Similar to your experience at American Woodmark, our cultural change effort is not so much an attempt to change our values Eut rather an endeavor to live up to them. Bill Brandt: Did you have any roadElocks along the way? John Howe: 2ne challenge was that many of us had participated in management programs in the past, and we wanted to avoid the response: “Been there, done that.” Another challenge was to ensure that this training would Eecome an everyday part of H2PE. We wanted to avoid the response, “This too shall pass.” Bill Brandt: Anything else? John Howe: Another challenge was the economic crisis in the United States which occurred early in this four-year period. With over ninety percent of our funding from the private sector, we were not immune to the Ànancial situations of our individual, foundation and corporation donors. It was a perfect storm! We experienced reduced donations, a suEstantial operating deÀcit, signiÀcantly lower valuations on

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investment reserves and increased pension liaEility costs. Since no one could predict the depth or duration of this crisis, we needed a plan to carry us safely through it. Bill Brandt: How did you create this plan? John Howe: It was not an easy task. Beginning in 2ctoEer 2008, our senior leadership team along with you met onehalf day per week for eight weeks with much additional work done Eetween meetings. We applied the lessons learned in our training sessions in the creation of this plan. Bill Brandt: What was your desired result? John Howe: First, we agreed that³after anticipating a signiÀcant deÀcit in Àscal 2009³our Ànancial position should result in a Ereakeven in 2010 and positive net operating income in 2011. Second, we wanted to protect and enhance our aEility to achieve our mission. Bill Brandt: What was your plan to accomplish this? John Howe: 2nce we had this oEMective, we took a hard look into all aspects of the organization. We needed a clear sense of our current reality. This effort took Ey far the maMority of our planning time. We needed to drastically reduce expenses, Eut we also needed to invest in critical programs such as electronic fundraising, Eranding and new Eusiness development. We had to make some very difÀcult choices. We reduced our headquarters staff, while maintaining levels for staff in puElishing and in the Àeld overseas. There were no compensation increases for headquarters staff, and our senior leadership took voluntarily compensation reductions. In addition, there were a numEer of unpaid furlough days for headquarters staff including senior leadership. We replaced our deÀned EeneÀt plan with a deÀned contriEution plan. However, to continue investing in our people, we maintained our leadership training at all levels of the organization. Bill Brandt: How did you progress with this plan?

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John Howe: We exceeded our plan for 2010, and we achieved our goals for 2011. We have used our resources³people, time and money³wisely and with good result. Bill Brandt: How do you see your role in leading the organization through this transition? John Howe: This is not a fad. This is not a here today, gone tomorrow program. This is something that has great value and needs to Ee woven into the faEric of an organization, and to that end, it won·t happen without the tone at the top, without the involvement of the leader. The long-term success is directly related to setting the stage³creating the vision, estaElishing a design to get there, Eeing very much a part of leading the retreats, teaching modules as part of the training and very importantly, ensuring that the discipline with a “small d” is in fact implemented. This is what I attempted to do. Bill Brandt: Has everyone Eeen aEle to make the transition to the new culture you are trying to create? John Howe: Happily, the predominant response of our people has Eeen very positive. 2ne of the great EeneÀts of the past four years is that we have seen the vast maMority of our existing leadership aEsolutely step up during this difÀcult time. But like any other program, it would Ee folly to think that everyone can go forward in lock step. In fact, a very small percentage of our leaders were not aEle to make the transition. For those who can, however, we recognize that each of us is on his or her own Mourney, and some participate in their Mournies at different paces. We have to make sure that we have patience to provide encouragement. In the end, what we·re creating is a culture of accomplishment and that will Ee the Ear that everyEody has to leap over. But at this point in time, I·ve Eeen Euoyed Ey the fact that the overall response has Eeen very positive.

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Bill Brandt: Have you experienced a personal transformation in either how you think or act as a leader? John Howe: The answer is “Yes,” and it·s seen in every meeting that I lead. I think that if you could contrast my leadership today to three or four years ago, it·s different. It·s different in the sense that it is much more participatory, more involved. Bill Brandt: You indicated that you wanted to create a “culture of accomplishment” at H2PE. Has your own leadership style changed as a result of this pursuit? John Howe: As we have strengthened the culture of H2PE in ways that have led to even greater accomplishment, I have Eeen Eoth a participant and a EeneÀciary. I have Eeen given the opportunity to learn a new training method³and to use it. I accomplish more at work each day Eecause of its lessons. Bill Brandt: Have these new Eehaviors Eeen easy for you to emErace? John Howe: Again, as with any new language, the early days were often challenging. While I was personally learning new ways of doing work, I was professionally leading others to do the same. It often required the Eest of “multi-tasking.” Bill Brandt: More than one memEer of your senior staff has commented to me that they have seen very positive changes in your leadership style. Will you Ee making additional changes? John Howe: Yes, for sure. For example, we recently recruited an Executive Vice President who will have operating oversight of 80 percent of the organization. This will require a different³less operations and more policy³type of leadership from me. Bill Brandt: What is the next step for ProMect H2PE? John Howe: The content of this training is not unlike great literature. To fully EeneÀt from it, it must Ee experienced³

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and experienced again. Using the peEEle metaphor, we will widen the involvement of our staff including those outside the U.S. We will increase our cadre of master trainers. And, as well, we will implement, in real-life situations around the world, what we learned from our earlier training sessions. Bill Brandt: You outlined a plan to take the organization through 2011. What are your plans now? John Howe: When it was clear that our Ànancial plan for 2011 was having a positive effect, we looked Eeyond it to create what we descriEe as our “Vision 2015” ³what we want to look like in that year? What we·re doing is Euilding on the Ease that was created Ey our 2011 plan. To use the terminology included in our training, Ey 2015 we want to Ee “viaEle,” “sustainaEle” and “valued,” and we have deÀned what H2PE needs to accomplish to Ee there. Bill Brandt: I have one last question for you. If someone were to call you asking your advice on whether or not to take this Mourney, how would you respond? John Howe: I·d start Ey asking a question, “What is it that you want to do?” I would then listen, and depending upon what they said, I would give different advice. If they were simply looking for some form of executive training, then there may Ee alternative solutions. But if there is a leader that truly aspires to transform his or her organization, then I would descriEe the H2PE experience³where we created a different culture, a different use of time and different relationships among all of the various parties. What I would do is not unlike what Kent Guichard did with me. I would say on the one hand that this is not for the faint of heart Eut on the other that it can Ee unleashing and transforming. Bill Brandt: Thank you.

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MY REFLECTIONS ABOUT THIS INTERVIEW The three-and-one-half day leadership retreats mentioned in the interview included all of the lessons in this Eook with the exception of the lesson, “Vision-Driven 2rganizations.” A particular focus of these retreats was skill-Euilding in the use of the 7-Step Process for Eoth individual and group applications. In the mid-afternoon, participants were divided into three teams to complete proMects that reinforced what they learned from the lessons. The topic for the Àrst evening was the dialogue, “Why I came to ProMect H2PE,” the second was a sharing of the early history and legacy of the institution and the third was a question-and-answer session with Dr. Howe and memEers of his senior leadership team. The agenda for a typical retreat is included in the Appendix at the end of this chapter. The purpose of the eight half-day strategy sessions referenced Ey Dr. Howe was to generate a plan that would enaEle ProMect H2PE to not only survive the economic crisis that Eegan in 2008, Eut also to Eecome a viaEle, sustainaEle and valued enterprise thereafter. I facilitated these sessions using principles from the lessons, “The 7-Step Process,” “Vision-Driven 2rganizations” and “Mental Models.” The planning took as long as it did Eecause of the complexity of ProMect H2PE·s Eusiness model. Approximately ten percent of our time was spent creating a vision, seventy-Àve percent upon understanding current reality and Àfteen percent on developing action steps. I Eelieve that the principles and methodologies employed Ey ProMect H2PE are applicaEle to any type of organization that needs to generate a positive cash Áow to support its existence. As a consultant, I have applied these principles to a range of for-proÀt and non-proÀt institutions, although ProMect H2PE is the Àrst organization³other than American Woodmark³

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where I have assisted in the creation of a Eroad-Eased cultural change effort. From my perspective, the leap of faith with ProMect H2PE was the degree to which these principles would Ee accepted across cultures. My Eelief going into this proMect was that they would Ee, Eut the proof was in the pudding³we needed to verify that this was the case. It·s Eeen very gratifying to me to sit Eeside someone at dinner from Mexico, China or India who afÀrms that the material makes sense and Àts culturally. That has Eeen my experience in talking with people across a full range of countries in which ProMect H2PE operates. As for-proÀt and non-proÀt enterprises Eecome exceptional, the differences Eetween them Eecome fewer and fewer while the disparity Eetween them and more typical organizations³whether they Ee for-proÀt or non-proÀt³Eecomes greater and greater. ProMect H2PE·s experience is an excellent example. Within the typical for-proÀt organization there is often a focus upon proÀts with work organized around this oEMective. Frequently, such entities have effective performance appraisal systems and a strong sense of accountaEility to keep them on track. 2n the other hand, the typical non-proÀt organization, such as ProMect H2PE prior to its transition, often organizes its work around its mission with the work of the organization kept on track Eased upon its memEers· sense of compassion for its EeneÀciaries. Exceptional organizations, whether for-proÀt and non-proÀt, have Eoth a heightened sense of mission and a recognition of the need to generate a positive cash Áow. They operate with accountaEility and inspiration and compassion. I think it is very informative that Dr. Howe descriEed wanting to create a “culture of accomplishment” at ProMect H2PE. He was not saying that he wanted to create a sense of compassion, Eecause ProMect H2PE had this Eelief already deeply imEedded into its culture. It is important to rememEer that tools and techniques included in this Eook as adopted Ey ProMect H2PE do not

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have any intrinsic value Eut are simply a means to an end. I Eelieve that in the future, ProMect H2PE will develop its own principles and methodologies and that some of these will Euild upon or replace what is presented in this Eook.

APPENDIX: LEADERSHIP RETREAT Each retreat consisted of approximately 20 participants from around the world who held a range of responsiEilities at various levels within the organizational hierarchy. As preparation for the retreat participants read essays related most directly to the lessons and watched two movies, Lorenzo’s Oil and Twelve Angry Men. The retreat lasted three and one-half days as shown in ExhiEits 36.1 to 36.4

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SECTION

5

Section 5

IMPLEMENTATION The essay and lesson sections of this Eook provide a picture of exceptional organizations³the results achieved, the key elements that drive their Eehavior and the principles and methodologies that support them. This section descriEes how to take action to make your vision of an exceptional organization a reality for your enterprise. It includes three chapters. The Àrst chapter, “Creating and Implementing Your Plan,” descriEes how to develop a “Plan of Action” to guide your actions in this endeavor and offers hints and suggestions that will facilitate this Mourney. The second, “Using Instructional Materials” descriEes availaEle offerings of PowerPointŒ slides of the lessons and versions of the case study, essays, lessons and the interview. Finally, the “Conclusion” shares my closing perspective.

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CREATING AND IMPLEMENTING YOUR PLAN There are two ways to implement the concepts presented in this Eook. First, you can apply its principles and processes to speciÀc situations as appropriate. For example, if your organization is seeking a new strategy, you can utilize the lesson “Vision-Driven 2rganizations” to assist you without regard to any other materials presented herein. The suEMect index at the end of Chapter 2 will help you to match your desired results with the essays and lessons that might Eest help you in creating those results.

PLAN OF ACTION A second use of this Eook is to assist you in creating an exceptional organization Ey undertaking a Eroad-Eased, enterprise-wide initiative. A Plan of Action, as diagramed in ExhiEit 37.1, is a guide for such an initiative. The steps for this plan are as follows. PLAN OF ACTION

 Choose to Implement? Ask yourself, “Do I want to create an enterprise exhiEiting characteristics of an exceptional organization consistent with those stated in this Eook?” If “yes,” then continue.  Have Prerequisites? As referenced in the essay, “To Be Exceptional,” ask yourself: 295

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z “Do I have the sense of purpose, values and existing or learnaEle skills necessary to lead this endeavor?” z “Does our organization have sufÀcient resources to sustain us until we create an exceptional organization?” z “Will our owners or those higher in authority support us as we pursue this transition?”

If you answer “yes” to all three questions, then continue. If you answer “no” to any of them, then take action to resolve the deÀciency prior to undertaking an organizational-change effort.  Create a Vision: Either on your own or with other key stakeholders, create a vision of your organization as Eeing exceptional. This vision should support your organization·s purpose and values. You can start Ey deÀning what viable, sustainable and valued means for your institution and then continue with the key elements in the same manner. Add any other factors appropriate for your vision not already addressed. The “Introduction” and the lessons “The 7-Step Process” and “Understanding Discourse” can serve as guides for this step and those that follow.  Understand Current Reality: DescriEe your organization·s current reality relative to the achievement of your vision. ExhiEit 37.2 shows a format that can Ee used as a starting point. From this starting point, you can Ereak down more speciÀc aspects of each factor. For example, under the “Vision-Driven” part of your vision, you may note that your people·s actions are not in alignment with your organization·s purpose.

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 Develop Action Steps: EstaElish action steps to resolve the discrepancy Eetween your vision and your current reality. For your initial iteration, only the most critical themes need Ee considered. While some action steps will likely include education and training Eased upon the principles and methodologies in this Eook, the maMority will Ee more speciÀc to your organization. You will need to create a hierarchy of action steps as descriEed in the lesson, “Working in Alignment.”  Gain Acceptance: Where possiEle, create a shared sense of the vision, current reality and action steps from key stakeholders including senior staff, those having authority over the organization and others necessary for a successful implementation. Depending upon the size and complexity of the organization, this process may take a numEer

Creating and Implementing Your Plan

of sessions for completion. It is important to realize, however, that the goal is not one of making decisions Ey consensus. 2rganization leaders should consult—as deÀned in the lesson, “Leadership Styles for Decision Making”³with their staffs Eut retain Ànal decision-making authority, for ultimately it is their responsiEility for setting the direction of their organizations. It is the staff memEers· responsiEility to accept this direction, even if it is not their preference.  Implement the Plan: Complete the action steps that will take the organization from its current reality to its vision. Measure the effectiveness of these actions and modify them as necessary until you achieve your desired result. With the scope of such an undertaking, it is likely that there will Ee signiÀcant misdirection, false starts and organizational resistance. The leadership challenge is to stay the course, making adMustments as necessary Eut not losing sight of the overall oEMective.

HINTS FOR CREATING AND IMPLEMENTING THE PLAN Here are some suggestions:  Commitment: As a leader, you must fully commit to the organizational change. This does not mean that you have all the answers as to how this change will come aEout, Eut rather the expectation that you will persevere until you do. As descriEed in the lesson, “Cultural Change,” the organization is a staEle system, which Ey deÀnition acts to maintain its existing status, reMecting any attempts to change it. Therefore, it will Ee imperative that you hold the vision even though there will

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likely Ee tremendous pressure for you to aEandon or modify it.  The Leader’s Behavior: As a leader, your current Eehavior is part of the organization·s existing culture. To help change the culture, it is critical that you Àrst model any new Eehaviors that you expect others in your organization to adopt.  The Magnitude of the Task: The challenges facing an organizational change effort will vary Ey many factors. All other things Eeing equal, the greater the organization·s size, complexity, geographic dispersion, competitive pressures and disparity Eetween its vision and current reality, the greater the task. For some organizations, meaningful results may only take weeks with limited effort, while for others they may require many years with suEstantial commitments of resources.  No Formula: Beyond the framework included in the Plan of Action, there is no formula for how Eest to proceed. Each organization will have a different vision and a different current reality, so the actions taken and the sequence in which they are taken will Ee unique to each. For example, if one enterprise has a dysfunctional Eusiness strategy, while another one·s is quite adequate, the appropriate actions will necessarily vary signiÀcantly.  Time Frames: Be realistic in setting time frames for achieving your goals. Anticipate and allow for potential resistance to action steps. Also, realize that at times unanticipated events will likely take precedence over your organizational-change initiative.  Create Stepping Stones Toward Your Vision: In some situations, the magnitude of your vision may

Creating and Implementing Your Plan

appear overwhelming. If this is the case, consider Ereaking down your overall vision into a series of goals that will Ee more readily achievaEle. A key responsiEility of the leader is to effectively manage the degree of tension Eetween the vision and the current reality. Too little tension results in too little movement. Too much tension may result³ like the snapping of a ruEEer Eand³in disEelief, resignation and again, little movement. The oEMective is to maintain a “stretch” in perceived effort Ey successively creating challenging Eut achievaEle goals. For example, your vision may Ee to completely replace your existing product line within Àve years. You may wish to create separate goals for what you need to accomplish each year.  Cultural Change: Merely descriEing a culture³ such as articulating new values, Eeliefs and traditions³in and of itself will not result in any signiÀcant change in Eehavior. Behaviors change when they are fostered and reinforced Ey new tools and processes that support elements of the desired culture. Therefore, to avoid any perceived sense of hypocrisy, it is important that leaders, at the start of a cultural-change effort, descriEe “acting in accordance with the new culture” as a vision to Ee aspired to rather than as a reality already in place.  Honor the Past: Build the culture upon the positive aspects of the existing culture. Honor the past rather than Ee dismissive of it. Realize that each generation of an organization stands upon the shoulders of the one that preceded it. Being dismissive of the past takes away the organization·s sense of roots and tradition and discredits

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the contriEutions of those still in the organization who had worked in those times.  Changing in Good Times: It is more difÀcult to change an organization when times are good than when they are Ead. In good times, people emErace the status quo, Eut in Ead times they fear it. The challenge when things are going well is to make people aware that if the organization does not change, the good times may soon Ee over. This will not Ee easy to sell. You may need to settle for “grudging compliance,” as descriEed in the lesson, “Leaders and Followers.”  Use of a Consultant: It may Ee advantageous to have a consultant to facilitate this process. It is critical, however, that the change effort Ee identiÀed as Eeing led Ey senior leadership rather than as Eeing delegated to a consultant. This identiÀcation will happen only if senior leadership is signiÀcantly involved in implementing this plan Ey modeling Eehaviors and teaching others to do the same.  Senior Leadership Role in Training: As soon as feasiEle, leaders and their senior managers should conduct most if not all of the training for key personnel. This task should not Ee delegated. At lower levels in the organization, the training should Ee conducted Ey those higher in authority Eut not necessarily the senior leadership team. Consider using level-to-level training for those aspects of the change effort that require acrossthe-Eoard adoption of new Eeliefs and the learning of new tools. With this approach, memEers at the highest level in the organization Àrst learn and apply the new principles and skills and then successively train those at the next lower level until

Creating and Implementing Your Plan

everyone at each level of the hierarchy has adopted them.  What Materials to Use and When to Use Them: Depending upon the organization·s needs, some of the materials in this Eook may Ee of EeneÀt while others may not. For example, for multi-level enterprises the lesson “Cultural Change” may Ee appropriate for mid-level management and aEove Eut not for those at lower levels. The next chapter, “Using the Materials in this Book·s WeEsite,” shows leaders how they can personalize their presentations.  Quick Results: While there is no formula for sequencing the use of the material in this Eook, the lessons, “Meeting Management” and “The 7-Step Process,” are Eoth tools which have the potential of generating effective results quickly. They will likely enhance work performance, Eegin the formation of a collective language across the organization and generate momentum toward creating a new culture.  Offsite Retreats: A particularly effective way to facilitate cultural change, especially for larger organizations, is a four-to-Àve day offsite retreat led Ey senior management. Such a retreat could provide for up to twenty-Àve people in a session with those attending coming from various management levels, functional areas and geographic regions. In addition to the speciÀc training, time can Ee spent in team-Euilding exercises, story-telling, dialogue and free time with other participants. Attendees are typically impacted as much or more Ey these activities as Ey the material presented. Furthermore, they are likely to leave such a session with

303

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a much greater connection and commitment to the organization and a greater sense of self.  Relieving Barriers to Change: Anticipate resistance to any change initiative. As descriEed in the lesson, “Cultural Change,” focus as much or more effort on relieving Earriers to change as you do to promoting EeneÀts. Key to this endeavor will Ee to help people to change their mental models, many of which will Ee held with deep emotional commitment.  People’s Ability to Change: The vast maMority of the people will make the conversion to the new culture. However, some will Ee unaEle to make the transition Eecause they either cannot perform new MoE responsiEilities or are unwilling to act according to its values. The higher the level of individuals in the organization, the more critical will it Ee that they Ee servant leaders who emErace the enterprise·s mission, values and Eeliefs. If they do not, these individuals must leave the enterprise either through their own volition or that of the organization.  Achieving Critical Mass: At some point, you will reach a critical mass where the impetus to change to a new culture will Eecome greater than the impetus to maintain the status quo. Reaching this point will Ee arduous and time consuming. 2nce reached, however, progress will Ee made more quickly and with less effort.

SUMMARY Using the Plan of Action and the hints for creating and implementing a plan as a guide, you will signiÀcantly increase the likelihood that you will create the organization you desire and do so as effectively and efÀciently as reasonaEle. To repeat

Creating and Implementing Your Plan

305

again, never lose sight of your vision, Eut Ee ÁexiEle in your approach to getting there. Modify your actions as appropriate. A successful Mourney will Ee more than worth the effort.

38

USING INSTRUCTIONAL MATERIALS The puElisher·s weEsite has additional offerings that will enaEle you to customize materials for speciÀc audiences. AvailaEle are electronic Àles of the American Woodmark case study, the interview with Dr. Howe, the implementation plan and each of the essays and lessons. Also availaEle are PowerPointŒ slides of each lesson for use in making group presentations. Each selection is self-contained, meaning that it has Eeen modiÀed so that it does not reference any other parts of the Eook. By so doing, only the relevant material need Ee considered, and it can Ee used in any sequence desired. The puElisher·s weEsite is: www.WinterValePress.com

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39

CONCLUSION

The traditional view of economic reality holds that the pursuit of “self-interest” EeneÀts not only individuals Eut also society. While we acknowledge the past successes of this premise, we have Eecome increasingly aware of its limitations. This Eook postulates a new more powerful paradigm, one that advocates the simultaneous pursuit of Eoth “self-interest” and “concern for others.” The key to living according to this new paradigm is the creation of exceptional organizations³ones that are viable, in that they achieve their purposes and act according to society·s highest values; sustainable, in that they remain viaEle over time and valued, in that they EeneÀt all stakeholders to a superior degree. An organization can facilitate its quest to Eecome viaEle, sustainaEle and valued Ey adopting: z a shared vision of the organization·s aspirations z a shared understanding of its current reality z appropriate action steps, including an effective Eusiness strategy z common Eeliefs and values z highly effective and universally applicaEle tools and processes z a common language across the enterprise.

307

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As these attriEutes are emEraced, the organization will likely reach a critical mass after which it will quickly move toward Eecoming exceptional. Because every organization that seeks to Eecome exceptional has a different desired result and a different starting point, each will follow its own unique path to get there. By providing various principles and techniques³a compass³ this Eook will help you along your way. As mentioned in the Introduction, this Eook is intended for those leaders, who in their hearts and minds, are already committed to creating organizations consistent with this new paradigm. For such leaders, my intent is not to overpromise those whose organizations· do not have the necessary prerequisites for success Eut rather to encourage them to develop these capacities Eefore undertaking such a venture. For those who·s entities do have these prerequisites, I encourage them to take this Mourney. While the challenges are real and there is no guarantee of success, the potential results are extraordinary, and a successful outcome is not only feasiEle Eut likely. There is the possiEility of many more exceptional organizations in this world. The expansion of such institutions will EeneÀt not Must individual organizations and their memEers Eut also humankind.

ENDNOTES CHAPTER 5 1

Rand, Ayn. The Virtues of SelÀshness. New York: 1961, x.

CHAPTER 7 1

Neff, Thomas -. and -ames M. Citrin. Lessons from the Top. New York: DouEleday, 1999.

2

Manual, Dave. “The Seven Most Crooked CE2·s of All Time,” Dave Manuel.com Newsletter, April 26, 2008.

3

Collins, -im. Good to Great. New York: Harper Business, 2001, 21.

CHAPTER 12 1

Wall Street. Beverly Hills, California: Twentieth Century Fox Film, 1987.

2

Smith, Adam. The Theory of Moral Sentiments, Edited Ey D. D. Raphael and A. L. MacÀe. 2xford, England: Clarendon Press, 1976.

CHAPTER 15 1

American Law Institute’s Principles of Corporate Governance. Egan, Minnesota: West PuElishing, 2008, 55.

2

This oEservation was made Ey RoEert Fritz as part of a seminar he conducted titled, Structural Approach to Leadership. Toronto: -une 4-5, 2009.

3

American Law Institute’s Principles of Corporate Governance, 414. 309

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CHAPTER 16 1

Enron Corporation. Code of Ethics, Internal Document. Houston: -uly, 2000, 1.

CHAPTER 20 1

Collins, -im. Good to Great. New York: Harper Business, 2001, 32.

CHAPTER 21 1

Frankl, Victor E. Man’s Search for Meaning. New York: Simon and Schuster, 1984, 16-17.

CHAPTER 23 1

Kidder, Rushworth M. How Good People Make Tough Choices: Resolving the Dilemmas of Ethical Living. New York: HarperCollins PuElishers, 2003, 81-82.

CHAPTER 25 1

Based upon a lesson created Ey -ames -ake Gosa. Unpublished Presentation Notes. 1997.

2

Senge, Peter M. The Fifth Discipline. New York: DouEleday, 1990, 219-220.

CHAPTER 28 1

Sipress, David. Cartoon: The New Yorker. New York: Conde Nast, 2ctoEer, 31 2011, 64.

CHAPTER 30 1

National Association of Realtors. Existing Home Prices. Washington, D.C., 2012. The existing home price index dropped from 221.9 for 2006 to 166.1 for 2011.

Endnotes 2

311

Downes, RoEert B. Books That Changed The World. New York: Penguin Books, 1956, 182.

CHAPTER 32 1

KatzenEach, -on R. and Douglas K. Smith. The Wisdom of Teams. New York: Harper Collins, 2002, 45.

312

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BIBLIOGRAPHY Alland -r., Alexander. Human Nature: Darwin’s View. New York: ColumEia University Press, 1985. American Law Institute’s Principles of Governance. Egan, Minnesota: West PuElishing, 2008. Briggs, -ohn F. David Peat. Turbulent Mirror. New York: Harper Row, 1990. Chaleff, Ira. The Courageous Follower. San Francisco: Berrett-Koehler PuElishers, 1995 Christensen, Clayton M. The Innovator’s Dilemma. Boston: Harvard Business School Press, 1997. Collins, -im. Good to Great. New York: Harper Business, 2001. Darwin, Charles. The Descent of Man. Lexington, Kentucky: PaciÀc PuElishing Studio, 2011. Darwin, Charles. The Origin of Species. Edited Ey -. W. Burrow. London: Penguin Books, 1958. Downes, RoEert B. Books That Changed The World. New York: Penguin Books, 1956. Eisler, Riane. The Challice and the Blade. New York: HarperCollins, 1987 Enron Corporation. Code of Ethics, Internal Document. Houston: -uly, 2000. Frankl, Victor E. Man’s Search for Meaning. New York: Simon and Schuster, 1984. Fritz, RoEert. The Path of Least Resistance. New York: Fawcett ColumEine, 1989. Fritz, RoEert. The Path of Least Resistance for Managers. San Francisco: Berrett-Koehler PuElishers, 1999. 313

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Fritz, RoEert. Seminar³Structural Approach to Leadership. Toronto: -une 4-5, 2009. Fritz, RoEert. Your Life as Art. Newfane, Vermont: Newfane Press, 2003. Gilligan, Carol. In a Different Voice. CamEridge, Massachusetts: Harvard University Press, 1993. Gosa, -ames -ake . Unpublished Presentation Notes, 1997. Greenleaf, RoEert K. Servant Leadership. New York: Paulish Press, 1977. Guichard, Kent. Unpublished Documents, 1994. KatzenEach, -on R. and Douglas K. Smith. The Wisdom of Teams. New York: Harper Collins, 2002. Kidder, Rushworth M. How Good People Make Tough Choices. New York: Harper Collins, 1995 Kidder, Rushworth M. Shared Values for a Trouble World. San Francisco: -osey-Bass PuElishers, 1994. Loye, David. Darwin’s Lost Theory. Carmel, California: BenMamin Franklin Press, 2010. Lorenzo’s Oil. Universal City, California: Universal Studios, 1992. Manual, Dave. “The Seven Most Crooked CE2·s of All Time,” Dave Manuel.com Newsletter, April 26, 2008. McLean, Bethany and Peter Elkind. The Smartest Guys in the Room. London: Penguin Books, 2003. National Association of Realtors. Existing Home Prices. -uly, 2010. Neff, Thomas -. and -ames M. Citrin. Lessons from the Top. New York: DouEleday, 1999. 2·Brien, William -. Character and the Corporation. UnpuElished Document

Bibliography

315

2·Brien, William -. The Soul of Corporate Leadership; Guidelines for Value-Centered Governance. Waltham, Massachusetts: Pegasus Communications, 1998. Rand, Ayn. The Virtues of SelÀshness. New York: Signet, 1961. Senge, Peter M. The Fifth Discipline. New York: DouEleday, 1990. Sipress, David. Cartoon: The New Yorker. New York: Condp Nast: 2ctoEer, 31 2011. Stalk, -r., George. “Time-The Next Source of Competitive Advantage,” Harvard Business Review. Boston: Harvard Business School PuElishing Division, -uly-August, 1988. TaleE, Nassim Nicholas. The Black Swan. New York: Random House, 2007. TannenEaum, RoEert and Warren H. Schmidt. “How to Choose a Leadership Pattern,” Harvard Business Review. Boston: Harvard Business School PuElishing Division, March-April 1958. The Bridge on the River Kwai. Culver City, California: ColumEia Pictures, 1957. Twelve Angry Men. Beverly Hills, California: Metro-Goldwyn-Mayer Studios, 1957 VandenEerg, Roger. Unpublished Notes, 2010.

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INDEX 1995 Vision 17, 28, 30, 34, 35, 40, 44, 46, 80, 105, 107, 110, 132, 138, 147, 193, 222, 223, 240, 251, 265 7-Step Process 79, 80, 81, 182, 183, 184, 185, 187, 190, 191, 192, 193, 194, 208, 209, 235, 244, 246, 252, 253, 263, 267, 280, 286, 297, 303

A

Action 4, 5 Adams, -ack 61 Advancing structures 80 Advocacy 216 ALD 122, 123, 220-222 Allen, Brian 191 American Law Institute·s Principles of Corporate Governance 96, 100 American Woodmark 17 7-step process 193 aEility to work in alignment 251 case study 17-47 cultural change 265 economic downturn 95 employee empowerment 110 ethical dilemmas 272 meeting management 202 mission statement 104 Amos Tuck School 19 Angelou, Dr. Maya 70

B

Balancing Loops 256, 259 Balancing system 262 Beliefs 151 Black Swan, The 44, 124, 314

Blount, Dave 26, 323 Bohm, David 204, 205 Boise Cascade 17, 19, 20, 22, 23, 24, 86, 124, 325 Books That Changed the World 217 Boston Consulting Group 28 Breno, Giordano 219 Bridge on the River Kwai, The 166 Builders Square 18 Business model 5, 93 leadership charismatic 71 Business strategy 5, 93,132138 checklist 135 creating 135 ButterÁy effect 121

C

Capitalism 1 Care-Eased thinking 271 Chaleff, Ira 170, 312 Chalice and the Blade, The 57 Character and the Corporation 141, 146, 313 Choices primary and secondary 227 right-versus-wrong 268 Christensen, Clayton 117, 312 Churchill, Winston 71 Citigroup 96, 97 Client/Provider relationships 137 Clients 135 Code of ethics 103, 144 Collins, -im 66, 67, 119, 309, 310, 312

317

318

Compass

Command-and-control governance structure 146 Competition 85 Competitor/Client/Provider interrelationships 137 Competitors 136 Cooperation-Àrst-and-conÁictsecond approach 87 Copernicus, Nicolaus 152, 218 Core moral values 142, 143, 148 Courageous Follower, The 170, 312 Creative orientation 79 Cross-functional teams 110, 239, 240 Cultural change 108, 254, 263 Culture 4, 6, 150-156, 263 as systems 263 deÀnition 107 four elements 150 Cultural change 254-267 Current reality 79, 184, 186, 189, 190

D

Daily Improvement Plan DIP 37, 111 Darwin, Charles 86, 87, 312 Darwin’s Lost Theory 87, 313 Davis, Dr. -ames 93, 94, 323 DeEate 89, 90 Decision-making styles 111, 112, 174-181 De Revolutionibus Orbium Celestrium (Concerning the Revolutions of the Heavenly Spheres) 218 Descent of Man, The 87, 312 Dialogue 91 as a type of discourse 91 deÀnition 205

facilitating 206 DIP 37 Discourse 204 understanding 204 two types discussion and dialogue 204 Discussion a type of discourse 90 Discussion and dialogue 90 Dominator model 57 Douglas, Kirk 69 Douglas, Michael 85 Downes, RoEert B. 217

E

EEEers, Bernie 65 Eisler, Riane 57, 312 Empowerment and consensus 110-112 Ends-Eased thinking 271 Enron 104 Ethical dilemmas 268-274 Everyone a leader and everyone a follower 74, 168, 170, 171 Exceptional organizations 2, 60 failure 117 key elements 4 viaEle, sustainaEle, valued 2

F

Failure 249 Fifth Discipline, The 60, 90, 165, 204, 205, 210, 211, 310, 314 Fitzsimmons, Dr. Tracy 70, 94 FlexiEle factory 29 Focused factory 28, 29 Follower attitude toward a direction 165 characteristics 168

Index deÀnition 158 Àve attitudes toward a leader·s direction 165 three Eeliefs aEout human Eehavior 165 Frankl, Victor 52, 124, 310, 312 Fritz, RoEert 78, 79, 80, 130, 183, 184, 225, 226, 229, 230, 244, 309, 312, 313, 323

G

Galilei,Galileo 219 Gandhi 107, 108 Gekko, Gordon 85, 88 Gilligan, Carol 54, 56, 57, 313 Good to Great 66, 119, 309, 310, 312 Gosa, -ake 40, 114, 119, 165, 310, 313, 323 GraEer, Al 23, 323 Greenleaf, RoEert 66, 313 Guichard, Kent 40, 99, 119, 236, 278, 285, 313, 323

H

Hanover Insurance 61 Harvard Business Review articles George Stalk 28 TannenEaum and Schmidt 111 Hill, Anita 89 Home Depot, The 18, 25, 33, Howe, III, -ohn P., M.D. 8, 11, 277-292, 323 How Good People Make Tough Choices 141, 144, 268, 310, 313 “How to Choose a Leadership Pattern”

319

Harvard Business Review article 111, 174 Human motivation 225-235 Human resources 115

I

IceEreaker 197 Identity second stage of moral development for Eoys 55 In a Different Voice 54, 313 Individual versus community 270 Innovator’s Dilemma, The 117, 312 Inquiry 217 Inspiration 5, 7, 60, 67, 69-72, 162 Interconnected systems 260, 262

J

-ustice versus mercy 270 -ust-in-time -IT production 29, 30, 36

K

KatzenEach, -on 236 Kepler, -ohn 219 Key values 26 Kidder, Rushworth M. 141, 142, 144, 145, 268, 269, 271, 272, 310, 313 Koslowski, Dennis 65

L

Ladder of inference 211 La Traviata Ey Verdi 71 Lay, Ken 65 Leader characteristics 168 deÀnition 73, 158

320

Compass

origin of the word 73 Leader-follower relationships 163 Leaders and followers 158-173 characteristics of 164 new view characteristics 167 traditional view 167 Leadership charismatic 71 everyone a follower 168 everyone a leader 168 self-focused 65-68, 161, 162 servant 66-68, 161, 162 Leadership retreat 38, 39, 58, 279, 288 Leadership styles 174-181 choosing 174 who needs to Ee involved 176 factors in choosing 176 Level-5 leader 67 Lorenz, Edward 121 Lorenzo’s Oil 122, 123, 220, 221, 288, 310, 313 Lowe·s 40 Loye, David 87, 313 Luck 121

M

Man’s Search for Meaning 52, 124, 310, 312 Maturity 55, 56, 58, 59 third stage of moral development 55 Maximizing proÀts 96 Measurements examples 248 response to 249 Measuring performance 79, 184, 186, 189, 190, 247 Meeting format, standard 83, 196 Meeting management 196-203

Meetings 82-84 American Woodmark·s experience 82, 202 informal 201 Mental models 90, 210-224 deÀning 210 discovering 215 proElems with 215 vs. Eeliefs 152 Mission statement 103-106 American Woodmark 26, 27, 104, 105 Modifying actions 79, 184, 186, 189, 190, 250 Moral development, 3 stages of 54, 55, 56, 143, 149 Motivation human 225-235 power 161, 162

N

National Kitchen and Bath Show 32 Natural-work teams 110, 239241 Newton, Isaac 219 Nickolai, Dr. 221 Non-proÀt organizations 93

O

2·Brien, William -. 55, 56, 57, 61, 62, 130, 141, 143, 146, 313, 314, 323 2EservaEle data 211 2done, Lorenzo, Augusto and Michaela 123, 220 2rganization deÀnition 236 2rganizing principles 5-7, 130, 131 Origin of Species, The 86, 312 2scillating structures 80

Index

P

Paradigm shifts 1, 2, 73, 74, 217, 219, 220, 221, 222, 223, 224, 307, 308 Partnership Model 57 Path of Least Resistance for Managers, The 80, 130, 225, 244, 312 Path of Least Resistance, The 78, 80, 130, 183, 225, 244, 312 Peck, Scott 88 People of the Lie 88 Plan of Action 295-299 Please the Eoss 6, 65, 67, 131, 162 Power 88 appropriate use of 161 as capacity 159 as control 159 deÀnition 159 hierarchical 160 sharing 160 two motivations for use of 161 Processes, examples 153 ProÀts 93, 96-101, 132 ProMect H2PE 8, 191, 276-292 Providers 136

R

Rand, Ayn 56, 57, 309, 314 Reactive orientation 78 ReÁection 215 Reinforcing loops 257-259 Responsive orientation 78 Rewards and punishments 69 Right person/right MoE 5-7, 114 Right-versus-wrong choices 268 Rule-Eased thinking 271 Ruth, BaEe 249

321

S

Scale-Eased strategies 28 Selective attention 211 Self-focused leadership 65, 67 Senge, Peter M. 60, 61, 90, 165, 204, 205, 210, 211, 215, 310, 314 Servant leaders 66, 67 Servant leadership 65-68, 161162 Servant Leadership 66, 313 Seven Most Crooked CEOs of All Time, The 65 Shared Values for a Troubled World 141 Shenandoah University 70 Short-term versus long-term 270 Smith, Adam 86, 87 Smith, Douglas 236 The Soul of Corporate Leadership 55, 56, 57, 61, 62, 130, 141, 143, 146, 313, 314 Spartacus 69 Stalk, George 28 Standard meeting format 83, 196 Structural conÁict 229, 230 Structural tension 80, 184, 192, 226, 227 Supreme Court Clarence Thomas nomination to 89 Survival Àrst stage of moral development 54 of the Àttest competition and cooperation 85 Systems thinking 256-263

322

Compass

T

Code of Ethics 103 conÁicting 232 TaleE, Nassim Nicholas 44, deÀnition 141 124, 314 TannenEaum and Schmidt 111, VandenEerg, Roger 236 Verdi·s La Traviata 71 112 Vision 79, 184, 186, 189, 190 Teams 236-242 Vision-driven organization attriEutes 237 Eusiness strategy/model 93 EeneÀts and costs of Moining checklist for structuring 139 237 organizing principle 130 characteristics 240 Virtues of SelÀshness, The 56, cross-functional 239 57, 309, 314 importance for organizations 238 Visual record 199 memEer Eehaviors 237 W natural-work 239 Wall Street 85 characteristics 239 working in 236 Walsh, Dr. William B. 276, 277 principles 236 Wealth of Nations 86 Tension-resolution system 225 West Point Honor Code 145 Theory of Moral Sentiments 87 White paper 17, 28 Thomas, Clarence 89 Widget department 254 TimEerlake 32, 33, 34, 35, 40 Wisdom of Teams, The 236 Traditions 150-156 Work hierarchy 244 Truth versus loyalty 270 Working in alignment 244 Twelve Angry Men 288 Worldcom 65 Tyco 65

U

Using materials from this Eook·s weEsite 306

V

Value-Eased culture 5, 6 creating 153 governance structure 6, 50, 55, 56, 57, 59, 60, 105, 146, 147, 148, 153, 155, 156 organizations competitive advantages 105 Values 141, 151

ACKNOWLEDGMENTS This Eook reÁects what I have learned over the course of my career, and therefore there are a multitude of people who helped shape its creation. I appreciate the contriEutions of all current and prior employees of American Woodmark: especially cofounders Al GraEer, -eff HolcomE and Don Mathias; the leaders who succeeded me as CE2, -ake Gosa and Kent Guichard; and Dave Blount, a memEer of our senior leadership team. I am indeEted to RoEert Fritz and Peter Senge, whose concepts are integral to this Eook and to George Stalk, whose ideas were fundamental to American Woodmark·s strategic direction. I am thankful for the advice and counsel of Bill 2·Brien and Dr. Lester ToEias, who have Eeen mentors to me. I am also grateful to those who have applied the principles in this Eook to their respective organizations, and in particular -ohn Howe, III, M.D., President of ProMect H2PE and -ohn Lamanna, Executive Director of TimEer Ridge School. For the actual development of this Eook, I am indeEted to Charles Dorris, developmental editor; Carolyn Porter, editor and Eook producer; Alan Gadney, Eook-marketing advisor; Liz Hamilton, graphic designer and -ustin RuEle, copy editor. A very special thank you goes to Todd RoEinson, who read every draft of this Eook and who provided encouragement and invaluaEle insight along the way. For reading drafts of the Eook or for making other contriEutions, I wish to thank: Brian Allen, -effery Arnold, Kate Buford, Douglas Clark, RoEert Claytor, Michael Curro, Dr. -ames Davis, Andrew Ferrari, Dr. Tracy Fitzsimmons, Ste323

324

Compass

ven Spike Karalekas, Reynold Pete Mooney, Dayton 2gden, Hager Patton, Thomas Richards, Vance Tang, Roger VandenEerg, and Miriam Wardak. I also wish to thank my assistant Kristy Walker who provided me with invaluaEle support throughout this endeavor. I am very grateful for my daughter Alison and the memory of my daughter Sarah. I wish to express my deep appreciation to my wife Elaine, who has Eeen Ey my side from the time that American Woodmark was no more than an idea to the completion of this Eook.

ABOUT THE AUTHOR William F. Brandt Jr. is a cofounder and former CE2 of American Woodmark Corporation, which was formed in 1980 to acquire Boise Cascade Corporation·s kitchen caEinet Eusiness. American Woodmark is the third largest caEinet manufacturer nationally, serving The Home Depot, Lowe·s and maMor Euilders. Sales have grown from 35 million to over 600 million. The company went puElic in 1986. Brandt has written for numerous puElications, and consults in the areas of CE2 coaching, leadership development, strategic planning and cultural change. He serves on a numEer of for-proÀt and non-proÀt Eoards including a university, a health-care system, a hospital, and an international humanitarian aid organization. Brandt has degrees from Dartmouth College and its Tuck School of Business. He is Executive-in-Residence at the Harry F. Byrd, -r. School of Business at Shenandoah University, where he is also a memEer of their AdMunct Faculty. He lives in Winchester, Virginia with his wife Elaine and their golden retriever Daisy.